Source: http://www.mhrealestateandinvestments.n … ent-page-1
The numbers we are going to get from last month from all the government cheese will be a red herring.MH Real Estate and Investments wrote:
This may be a surprising headline considering I’m in the business of handling real estate transactions, but I believe that consumers should know what they are getting into, not get fed a bunch of pie in the sky optimistic rhetoric.
The bulls point to 2 metrics as to why the housing market is going to improve –
1. Annualized sales are roughly half of historic norms. (366,000 vs pre-bubble 650,000)
2. Home prices have been on the rise for 8 straight months in many markets.
Those are valid statistics to a point; however I doubt that lending is going to open up to the degree necessary to get sales back to their pre-bubble averages. The mandates of Fannie Mae & Freddie Mac stretch back much further than the bubble years. Their difficulties make it seem quite unlikely that banks are going to want to retain additional mortgage debt risk. Without Fannie or Freddie to grease the wheels of securitization and keep investment money pumping into the system, banks are going to be more careful about whom they lend to, thus reducing the pool of qualifie buyers leading to a creation of a new ‘norm’ for annualized sales.
Secondly, this home price increase is a mirage. In many areas the home prices have gone up because homebuyers are fighting to take advantage of the tax credit. The primary reason for the median increase is that jumbo loans are slowly starting to come back. The housing market was skewed towards the lower end because that was the area where banks were still willing to lend and there is a greater population pool. Remember the median is the 50th percentile, if there aren’t any high end homes in the market, then the market weighting is going to pull home values down substantially.
The negatives on the other hand are much more powerful. Foreclosure rates are still high, many Americans still have adjustable rate mortgages and interest rates on mortgages are going up. Job creation is a sham because many of the jobs are temporary having to do with the census. The government’s lack of fiscal restraint is going to continue to drive up borrowing rates over the next few years as well.
So we have high unemployment, coupled with a large supply married to increasing rates which equals a housing market that is going to be stagnant for a couple more years.
Does that mean you should wait to invest or buy? Not necessarily, nobody can predict the exact turning point. It’s better to get a ‘good’ deal than to miss out on the investment altogether. Just be prepared to hold onto the property for 5+ years. If you’re not trying to get rich quick, then this IS a good time to dip your toes into the market, but be forewarned it’s going to be a bumpy ride.
