As a continuation of my previous blog post on Lawrence Yun's speach at the National Real Estate Cyber Convention, here are some further highlights and what I think are interesting tidbits of information about the state of the current housing market and predictions for the year ahead:
- The decline in housing prices is destroying middle class wealth.
- Average home price to income is now below historical levels.
- More importantly, the average mortgage payment to income (by middle income person buying a medium priced home) is below historical rate. This implies an overcorrection in the market. Therefore a stimulus is actually justified in the form of the tax credit in order to prop up the overcorrection.
- If consumers feel more comfortable that their home prices are stabilizing, they will feel more "wealthy" and therefore will spend more and help to stimulate the economic recovery.
- Regarding the foreclosure epidemic: In 2009 there were 3,500,000 foreclosures. 2010 is expected to be just as high. The difference is that the homes are coming to the market and selling quickly, sometimes in bidding wars by eager buyers trying to buy deeply discounted properties(that is definitely the case here in South Florida, especially in the lower end)... therefore the distressed properties are at least coming off the market quickly.
- Short Sales: again the process will begin to shorten with more guidelines being put into place.
- Mortgages: Lenders will continue to face foreclosure pressure from past lending mistakes in the subprime market. Subprime default rates are rising very fast. Additionally, with prime borrowers we are seeing a disturbing rise in default rates, in many cases these are strategic defaults. Particularly in markets such as ours in the Boca Raton Real Estate market, where there was a boom and bust and sellers are deeply underwater, there is a trend now to strategically default on the mortgage, and this trend will continue to rise if home values continue to decline.
- RISKS which could impact a recovery include:
- Higher interest rates. Last year the average of 5% was an all time low. THis year rates may be closer to 6% by year end and possibly even greater in 2011. Although still historically favorable a rise in rates could impace the housing recovery
- Federal Budget Deficit- as the federal government has increase deficits there will be a need to increase revenue, therefore there might be pressure to eliminate some of the tax favoritism towards housing in federal tax policy: mortgage interest deduction, capital gains tax exclusion, property tax deduction.
- Although the residential real estate market looks to be healing and poised for a respectable recovery with no expectations of another housing bubble, the outlook for commercial real estate is bleak.
- Commercial real estate market continues to struggle with more bad news ahead. Because of the poor job market, demand for commercial space has weakened, vacancy rates are rising, rents are being reduce which therefore wil cause a further reduction in commercial property values. However, this does present a great opportunity for astute buyers. Since commercial mortgages are generally unavailable, CASH IS KING in the commercial sphere and there could be some great deals coming down the pike.
I hope you found these predictions to be interesting and something to think about. I must say that in the South Florida and particularly Boca Raton real estate market there is definitely an increase in activity and definitely bidding wars in particular in the lower end of the market. I do believe that the higher end above $1,000,000 will continue to decline as inventory levels are rising and the access to jumbo mortgages is much tighter.
Gloria Singer is the Broker of Boca Expert Realty, a boutique Boca Raton real estate company with a focus on professional service and an unparalleled customer experience. Our select agents are amongst the top performing professionals in the field. Visit www.BocaExpert.com for information on Boca Raton, Delray Beach and Highland Beach real estate and to connect with an expert in the local market.