Making Sense Of The Housing Market!

14. April 2008 by Burbank Real Estate.

There’s plenty of bad news out there and I think it’s important to sift through the slate of negativity in order to understand what’s really going on. If you are looking to buy or sell a home, is this the right time?

First let’s look at some of the recent facts:

• A report by Equifax and Moody’s Economy.com.shows that 4.46 percent of mortgages were at least 30 days past due at the end of the first quarter, up from 3.98 percent in the fourth quarter and up 2.9 percent from a year earlier.

• The national foreclosure rate rose to 1.39 percent, from 1.08 percent at the end of 2007 and 0.58 percent a year earlier.

• Increases in mortgage delinquencies and foreclosures, again nationally, were the largest since 2000, when the firms began collecting this type of data. Major contributors are rising unemployment, 80,000 jobs lost last month, according to the Labor Dept., and falling home prices.

• Pending home sales in February fell 1.9% nationally, although here in California they rose 2.1%, once again bringing home the point that real estate is quite area specific.

What makes this time around so interesting and much more challenging is that the Fed has shaved 3% points off bank borrowing costs, but the average fixed rate has only dropped by ½ % to 5.85%. Back in 2000, last time home sales fell year over year, interest rate cuts saved the day. In 2001 the Fed cut rates 11 times by 4.75% and average fixed rates fell to a record low of 5.21%. My guess is that the average 30 year fixed rate will have to fall more before it starts to make an impact. If you are waiting for the Bush FHA Plan to save the day, I would not start to celebrate just yet. Here are the primary particulars of the plan:

• Relaxes eligibility standards for government-backed loans
• “Encourages” lenders to forgive a portion of mortgage debt so that homeowners could refinance.
• Subprime borrowers who cannot afford their loans and have missed two or three mortgage payments would be eligible for FHA assistance.

This plan appears to do little for the majority of borrowers who are in trouble and I think lenders will need much more than encouragement to forgive mortgage debt. When was the last time your bank let you slide on a debt of $50,000 or more?So where does that leave us? The reality is that you need to look at each area specifically. Are jobs leaving your area? Does your area have many subprime borrowers who are in over their heads? Do you have many buyers on the sidelines who are able to qualify for a loan? What’s the median price for a home? Etc.Each city will weather this downturn differently and it’s important to know the health of the local economy before assuming your area’s home prices will continue to fall.

Having said all of this, if you are a buyer waiting for the recession to pass before getting into the market, you might not want to wait too long. According to Clive Granger, winner of the 2003 Nobel Prize in Economics and professor emeritus at UC San Diego, says the

U.S. economy has been in a recession for about four months. He expects the current recession to last an additional 2-6 months, depending on what occurs in the housing and financial markets. That prediction would put us in a recovery in 2009. If that’s the case your bargain basement prices will not be around for long, especially if lending institutions start to work with borrowers.

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