A Look Into the 2009 Real Estate Market

Posted by Greg Smith on Wednesday, January 7th, 2009 at 5:38pm.

 Real Trends- a premier Real Estate Marketing Organization has just released their prediction for 2009 and here is what they have to say. The bold comments are mine.

Real Trends first published a study last spring that showed that the ratio of housing sales to total households had been remarkably consistent over the past thirty years. It showed that roughly 5% of all households purchased a home, whether averaged over the past thirty years or factored over that same period without the booms and bust of that time period. It also appeared that going into the fourth quarter of 2008 that this model was going to be very close in predicting the volume of new and existing home sales at around 5.5 million for 2008, which is where the industry was at the end of September.

Then Wall Street exploded and unemployment jumped through the roof. Fragile consumers then bailed out on any spending, sending car sales, retail sales and housing sales plummeting. So much for our models for 2008 being on the mark.

Now it appears that with written contracts falling more than 20% or more in most markets in October and November, and closings falling more than 20% in November 2008 (See the November REAL Trends Housing Market Report in this newsletter) from November 2007, we are more likely going to finish 2008 with total new and existing home sales closer to 5 million than to 5.5 million, a drop of nearly 9% since the start of the fourth quarter. This is in line with what we have seen in the Boulder county and surrounding areas. The City of Boulder transactional volume is currently down 17.5% from 2007, but inventory is only up by 5%. As a result we have only experienced a 2.2% reduction in our average and median sales prices across the board. Areas such as Superior and Louisville have seen a slight reduction in unit sales. This can be contributed to a reduction of inventory on the market. Our market is very price and area specific so give us a call if you would like to know about a particular market bandwith.

Reviewing past recessions we note that the ratio of housing sales to households was closer to an average of 4.1% turnover and not the average of nearly 5.0% for the past thirty years. If we assume that we are in a recession and that we will be in one for at least the next twelve months, then housing sales could be as low as 4.6-4.7 million total new and existing sales in 2009.

What may well soften this blow are mortgage rates and stimulus from the Federal Government over the next six to twelve months. Already without direct buy down actions, mortgage rates as of this date are flirting below 5%; some rates are already below that level and without a strong demand for borrowing from the consumer or business sectors the chance to go lower is higher than the chance they will rise.

So call 2009 worst case down about 10% from 2008 and best case about even with 2008. That means that 2009 will be roughly equivalent to the sales level of 1996-1997 when total housing sales were at the 5.0 million level. Since Boulder county is built out in most areas and referencing our recent article highlighting our reduction in inventory over the last few years we are expecting to see 2009 to stay flat and present. This is a strong opportunity for Buyers to get a good value and a great interest rate.

The average price of homes being sold will continue to decline as negative equity forces more foreclosures, which are sold at bargain basement prices. These factors also tend to cause more downward pressure on prices. Unemployment will add to this problem. So too will the fact that already it is evident that the recidivism rate on loans that have been modified is above 50% in many markets after less than six months after the modification. So much for lending a hand; as the article below says, once a homeowner is granted a break what is to stop others from wantingthe same break (just stop paying your mortgage) or for the same homeowner from asking for more help later on. Each of these factors will continue to keep a lid on home price appreciation and stretch out the time that it will take to calm the housing market and set the stage for a long lasting rebound.

So volumes could well be down 12-18% in 2009 in some markets.
We think all of these factors will affect different markets in different ways over different time periods. But we also think that over the next two years it will start to finish the process of working its way through the housing market and the general economy. Some markets are far less affected by foreclosures than others, Boulder County is a prime example of a market with very limited foreclosure activity and the good news is that in markets where foreclosures are high, so too are transactions as smart first time homebuyers and investors alike are jumping at the bargains offered in today’s market.

It is impossible to predict the bottom of the market, but if I were a betting man, 2009 looks like a prime time for Buyers to move off the sidelines and take advantage of the great values and interest rates.

Greg Smith

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