Housing Market Stabilizing?

This very informative PDF slideshow is from NAR's chief ecomomist, Lawrence Yun, who participated in a forum panel discussion here in Tucson on January 9th with local industry experts, Laura Mance (regional VP of Coldwell Banker), Judy Lowe (Executive VP of Realty Executives), Rosey Koberlein (CEO of the Long Companies), and Kimberly Clifton (Owner of Tierra Antigua). The overall message was that the media is causing consumers to fear the worst regarding the housing market. This fear is creating anxiety and has caused many buyers to delay their home buying (they are trying to wait until the market bottoms out completely). The local experts on the panel seem to concur that we are in a somewhat stabilizing market environment here in Tucson, and can expect that we will be 'trawling along the bottom for a while' until the market possibly 'ticks up' in the second half of 2008.

My opinion is that we are probably going to see quite a few foreclosures throughout 2008. With prices already having been depleted from their 2005-2006 highs and many adjustable rate mortgages adjusting their interest rates upwards this year, my prediction is that you're going to have many homeowners who can 1) no longer afford the payments on their mortgages, and 2) as a result of having little to possibly negative equity- they will walk away from their homes. This may cause two things to happen: 1) due to huge losses and perceived risks in lending, banks will further tighten their underwriting standards, causing the mortgage market to become less liquid, and 2) further price declines are highly likely (some experts believe a 10-15% additional drop in prices is possible) as lenders are saddled with additional foreclosures, and in turn drastically lower prices in order to unload them as quickly as possible due to the glut of unsold homes. This hurts everyone in the communities where the foreclosures happen as property values are further depleted, and homeowners who plan to stay end up losing a lot of equity in their homes, and can certainly no longer use their homes as 'piggy banks.' Granted this sort of an outcome will not be across the board, but it will have a definite affect on consumer spending. There are areas of Tucson where homes will maintain their value, and some desirable areas of town may possibly see a small appreciation by the end of this year. But it will be relegated to pockets where inventory levels are tight, because the market is primarily fueled by supply and demand.

Since none of us has a crystal ball, we will all just be waiting to see how this plays out. I think you can take it and turn it any way you want to to get the outcome that is desirable to you. Sure, as a professional Realtor, I am hopeful that we have seen the worst of this market beast, and it will be smooth sailing from here on out for the rest of 2008. But the pragmatist in me says otherwise. There are too many homeowners out there struggling to pay their mortgages, and the inventory in Tucson is still running at 12 months (for resale homes). Builders are practically begging buyers to buy. I was at a new home community earlier this week with a client, and the builder's representative said to me, "This has been extremely difficult for us. We have never known a market like this in Tucson." One of my past clients likened it to the early 1990's when he said, "You couldn't give properties away." But the critical difference between the recession of the early 1990's, and the current down real estate market is that most homeowners had a larger equity stake in their homes at that time because banks were more conservative in lending money, and there weren't 100% financing options available if you were purchasing a home in 1991. It wasn't an option that banks would have even considered at that time (probably because they weren't yet packaging the loans to sell to investors). Another client of mine who works for a national bank that has a large home mortgage division said to me earlier this week, "As of this week, there is no more 95% finanancing. The minimum LTV (loan to value) ratios are now 89%." What this means is that the banks are getting more conservative. They are tightening their belts. They have to protect themselves if they are going to survive, and selling loans packaged to investors is no longer a viable option. The high flying, money slinging days of 2005 are over! The impact on the market of this decreasing liquidity is that 1) due to the subprime disaster, buyers cannot qualify for the high priced homes they once could, and 2) only buyers with a substantial down payment are going to be able to buy a home in today's market. This is pulling a lot of buyers out of the buyer pool, and it is another reason that could cause prices to drop further (remember what I said about supply and demand fueling the market), as well as causing inventory levels to continue to soar.

So there you have it in a nutshell- my two cents for the week! I will be back soon. My next article is going to be about home staging. I want to write about ways that you can make your house stand out from the competition in a crowded market place, and will do that in the next post. Well, have a great weekend, and please don't hesitate to contact me with any questions.

Written by Sarah Ley
BSBA, ABR, CRS, CNHSA
Tucson Realtor with
Long Realty Company
(520) 404-0544
http://www.sarahley.longrealty.com/
sley@longrealty.com