Help me think through this….
September 11, 2007
According to the National Association of Realtors, home sales are off. No, really!
In fact if you go to their web site you’ll see the following article listed below for your convenience. With your help, I would like to go through the article paragraph by paragraph to understand where we are from a real estate standpoint. If you have any desire whatsoever to owner finance the sale of your primary home, this article will help you decide!
Mortgage Problems to Dampen Home Sales in The Short Term
WASHINGTON, September 11, 2007 – Tighter credit for home mortgages will measurably dampen home sales in the short term and postpone an expected recovery for existing-home sales until 2008, according to the latest forecast by the National Association of Realtors®.
“We have already started the fourth quarter of the fiscal year 2007 and the National Association of Realtors only now uses words like ‘dampen’ when describing nonexistent real estate sales. That is a curious use of phraseology.”
Lawrence Yun, NAR senior economist, said unusual disruptions in the mortgage market are dampening the outlook for home sales, notably for August and September. “There’s been an unusual hit to home sales, starting in March when subprime problems emerged and more recently when problems spread to jumbo loans, with many potential buyers on the sidelines.
“This is not rocket science, folks. If a group of people do not pay back their mortgage loans then banks won’t have enough funds to finance jumbo loans.”
“However, the jumbo loan market is now beginning to settle, and FHA-insured loans are helping to fill the subprime vacuum. The volume of existing-home sales this year will be better than 2002, which was the second year of the housing boom.”
“I don’t mind going back in time to find a year better than the one were currently having but to go back five years tells you how bad the current market is!”
Existing-home sales are projected at 5.92 million this year and then rise to 6.27 million in 2008, compared with 6.48 million in 2006. New-home sales should total 801,000 in 2007 and 741,000 next year, below the 1.05 million in 2006.
“Estimates are just that: no one is going to lose their job for a bad set of guesses. To my mind, anyone who wants to forecast into the year 2008 about homes bought and sold is playing fast and loose with the numbers. If their crystal ball is so accurate, they wouldn’t be forecasting real estate news.”
“A sharp production pullback by homebuilders deep into 2008 is a healthy trend that will help trim down housing inventory,” Yun said. Housing starts, including multifamily units, are expected to total 1.37 million this year and 1.26 million in 2008, compared with 1.80 million in 2006.
“When realtors use terms like ‘healthy trend’ to describe homebuilders losing their shirt on new-home construction, something has to be wrong with the vocabulary set.”
“The mortgage markets will calm further in the months ahead, but it’s important to underscore the fact that conventional loans – the vast majority of available financing – are available to creditworthy borrowers,” Yun said. “Patient buyers in most areas who do their homework will recognize that housing remains a good long-term investment.”
“This is the interesting part as it pertains to Owner Financing and that there is very few creditworthy borrowers in today’s market. As I visit with various realtors they indicate that the good buyers are staying home because they’re afraid to be caught in a valuation crunch. Simply said, they don’t want to buy a home that is overvalued. To lure good buyers in the market, you the owner of the home will have to produce incentives such as Owner Financing.”
Existing-home prices are likely to slip 1.7 percent to a median of $218,200 this year before rising 2.2 percent in 2008 to $223,000. The median new-home price is estimated to drop 2.2 percent to $241,100 in 2007, and then increase 1.7 percent next year to $245,100.
“Any discussion of what is going to happen in the fiscal year 2008 is off-limits. Nobody can time the market and no one can see the future. Anyone who says otherwise has a bridge they want you to buy in Arizona.”
The 30-year fixed-rate mortgage is projected to average 6.4 percent for the balance of the year and then edge up to the 6.5 percent range in 2008.
“We expect the Fed to cut rates two times before the end of the year, which will lower interest rates for prime borrowers and FHA-insured loans,” Yun said. “FHA modernization could buffer the fallout of subprime loans, which would raise our sales forecast in the future.”
“Saying that you expect that the Federal Reserve Board will cut interest rates is analogous to saying we expect the impossible from our government. Last time I checked there was no discussion as to whether Ben Bernanke was going to cut rates or not.”
Growth in the U.S. gross domestic product (GDP) is forecast at 2.0 percent in 2007, below the 2.9 percent growth rate last year; GDP will probably grow 2.7 percent in 2008.
The unemployment rate should average 4.6 percent for 2007, unchanged from last year. Inflation, as measured by the Consumer Price Index, is estimated to be 2.8 percent in 2007, compared with 3.2 percent last year. Inflation-adjusted disposable personal income is likely to increase 3.6 percent this year, up from 3.1 percent in 2006.
“If you want to know what the annual rate of inflation is, www.bls.gov is a better source, not the Consumer Price Index. The Consumer Price Index may be a useful measure first some kinds of things but is not useful for measuring inflation or wage appreciation.”
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.
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For more information, contact: Walter Molony, 202/383-1177, wmolony@realtors.org
http://www.realtor.org/press_room/news_releases/2007/sept_forecast07_dampen_home_sales.html
“By all means, go ahead and visit with Walter Molony about some of the hard data appearing in his article. Ask him if he trusts his puff piece enough to put his job on the line if the pie-in-the-sky guess-estimates are incorrect. I know a lot of homeowners that need to sell their home and cannot trust these figures. Real estate is too important to leave to the realtors.”
Best in Success,
Maria Fee
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Trading Financial Futures TM
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