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23 January 2009

Predictions for 2009 – You Tell Us

Where is the economy headed?  When will the recession end?  How much lower will housing prices fall?  How long will interest rates stay as low as they are?

These are just some of the many critical questions people within and outside the industry are asking right now.  For those who make a living in residential real estate, the answers to these questions could shape critical decisions.

Do you agree with what’s being predicted by NARFannie Mae?  Anyone?

We’re not even going to try to make predictions, but we’re very curious what you think.

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Thanks for participating!  If you have any other questions you would like us to ask, feel free to submit them via the comments.

8 thoughts on “Predictions for 2009 – You Tell Us

  1. No doubt we are in for some tough times but hopefully we have hit bottom. Everyone is tightening their belts but with lower interest rates and a buyers market house sales should improve as 2009 unfolds. Much of this will depend on confidence in our new presidents economic policies and how tightly congress monitors the bailout funds. Assisting the banks and financial institutions with bailout funds will only benefit the economy if the banks get the funds flowing in the economy in the form of mortgages and business loans. In these difficult time we all have keep our heads up and remain confident that better time are ahead.

  2. I believe the new administration and the media can do a lot to restore confidence in our economy. Many would agree that the American consumer has been shaken and is very concerned about the future. That is a direct result of housing and their retirement portfolio (201K vs 401K). The housing market can be corrected with the help of introducing below market mortgage interest rates, that are available to anyone. Yes, even people that are “underwater” on their homes. How about The folks that are underwater must sign a shared equity agreement so when the house is sold the government can share in the profits? Banks borrow money from the fed at a very low interest rate today, so every mortgage written today at 4% would be profitable. Someone very smart like Nicolai can figure out how to account for all the securitized mortgages that would need to be unwound, and repackaged using the new mortgages that are created using this plan.

    Low interest rates will stir home appreciation as most people buy a house based on the monthly payment. so if the same payment can buy a larger home then the phenomenon will occur without additional help.

    Low interest rates help the fragile consumer. And it obviously helps the person $200K underwater on there house who could never refinance in a million years and is stuck. And the guy who made all the right moves and has equity, a good payment, job, etc would get a bonus reduction in mortgage payments. And here is the big one, the banks would rewrite loans, hopefully increase their margins, lower risk of default, and recapitalize their performing assets. Who wouldnt win??

  3. The new government must take immediate drastic action and take full controle of banks. Nationalization is not a popular way of solving the banking-issue, but is has been successfully done in Scandinavia in terms of crisis. The government controle should last no longer than 5 years after which the best run banks can go back/be sold to the old or new owners. Hire specialists – real estate people – to oversee the banks lending policies to get the housing market started. Offer $4-5.000 in scrap money for their old car to get people to buy a new car and bring the important auto-industry back in full swing again.

  4. It is a great time to pursue one’s real estate investment in my local market; Lehigh Valley, PA. Median house prices increased over 60% between 2000 & 2006, while median house prices have only declined 3% since 2007. There are some good buys in my area, our local market has remained fundamentally sound, and there is little doubt for excellent long term growth. However, at this time the housing market remains very stagnant. Other economical concerns have certainly contributed to halting today’s real estate market, job losses, bank woes, inflation, gas prices, etc. However I believe that the most significant catalyst to today’s market stagnation can be attributed to many of the advertised real estate “hot topics” such as: foreclosure rates, adjustable rate mortgages, falling housing values, etc. These “hot topics,” while of concern to one degree or another in all areas of the country, have enabled a fairly under-educated public to see today’s real estate market as too much of a black and white issue; either to get into the market or to stay away and see what happens next.
    The good news in regard to the media generalization of today’s real estate market (real estate is and always has been local) is that it has provided the exposure necessary to make some much needed changes, namely greater regulation of the lending industry. In my eight years of real estate experience I have observed an enormous need for bank regulation! The bad news is that many of today’s potential buyers may be missing out on a great time to buy; interest rates are historically low, inventory remains high, prices are flat or generally lower than they have been in the past two years and nobody can realistically predict exactly what will happen tomorrow.

  5. Thank you everyone for your comments.

    A lot of what has been proposed above is focused around keeping interest rates low (or, somehow, lowering them more). Although we can certainly argue about how free-flowing credit is right now, I wonder whether trying to nudge rates any lower really addresses the fundamentals. There is a lot of mortgage activity now due to the lower rates, but this is almost exclusively in refis. Yes, this should lower payments for many, making foreclosure less likely for some, but I think that’s a small sample size in the whole scheme of things. I’m not convinced lower rates are the answer.

    I believe the problems in the economy are much more than perception and I think they will continue to override any “fix” that cheap money can provide. I tend to think unemployment (both actual and the fear of it) is keeping a big piece of the normal market on the sidelines. There may very well be several markets in which we have hit or are near the price bottom (the expert consensus seems to be that we’re not there yet on a national level, however). Potential buyers in those markets may know that’s the case, but the very real economic concerns and problems won’t allow many to move on the opportunity presented by low rates and prices at or near their nadir.

    Although I believe a lack of necessary regulation was one (of many) causes that put us in this situation, the free market economist in me can’t help but want for “nature” to work itself out in order to get back to sustainable growth. Plus, I don’t have much faith in any government’s ability to actively manage any industry.

    Any thoughts there?

    So far, there is a surprising (to me at least) optimism in the voting (56 votes as of this writing, with our readers basically stating that they believe things will pick up relatively soon).

  6. Nic,
    I agree with most of your statements above. I am not overly optimistic that things will pick up relatively soon (6 months, 1 to 2 years) either. I agree that the problems with the economy are more than perception (although the media may skew many perceptions); this is indeed worrisome. But I agree to a lesser degree in regard to the current status of our residential real estate economy (with the exception of trickle down effects from job woes, retirement funds, credit, — obvious factors).

    Did it make more sense to buy when prices were rising every day/week/month; paying thousands or ten of thousands more for the same properties that sold for much less six months or a year prior? Did the past frenzy of buyer competition really justify sound investment principles? It’s kind of like standing in line to buy the latest iPod, cell phone or new video game system when you can wait six months and buy those things for half price.

    Or is it more sensible to buy in today’s flat market; with much less pressure/compromise for one’s wants and needs; getting what one really wants and can afford; thereby making a more sound long term investment? Also, purchasing with today’s all time low interest rates can’t really be argued with, unless you want to defend the gamble of the misconceived cushion of refinancing one’s equity in the near future (rarely a fundamentally sound strategy).

    In terms of Wall Street most would agree that today is a great time to invest. There is generally much more room for opportunity growth than there has been in the past decade. Those with money under the rug (unfortunately not me either) who can afford to invest today, I believe, stand to make unprecedented return in the years to come. Unfortunately, the majorities of Americans (see the refinance example above) are cash poor and won’t be able to partake in many of today’s opportunity.

    I am optimistically certain that you’re right in stating that “nature” will work itself out. In regard to our current real estate economy what we are seeing is twofold: 1. a readjustment of an unprecedented market (the former sellers’ market) and 2. an absorption of “fly by night” lending institutions (today’s lenders are absorbing the mistakes/fraud made by many lending institutions that are now out of business or are currently on their way out). Yes, government can not solely sort out this problem; this would obviously turn into a logistical nightmare! But government can and should seek ways to effectively contribute/preside in the tightening of the reigns on the mistakes, fraud, scams, predation, chaos, irresponsibility and malpractice (all more common in a “free” market economy) of the past.

  7. @MJW – I’m in complete agreement that so much of what was going on during the market boom defied all logic. It was inconsistent with sound investing principles. I also agree that the current market conditions allow for more rational decision-making for buyers (and, to your point, it’s a gamble to try to get the absolute lowest possible monthly payment by guessing at the timing of when low prices will combine perfectly with low interest rates). I’m also quite sure that, years from now, many will look back and lament the missed opportunities.

    I’ll admit I’m not a complete free-market fanatic. I see its failings in practice but I still like to dream about the utopian idea of it (though I could sort of make that argument about communism…but I won’t go there). I don’t believe the free market alone can pull us out. My main point was that I don’t want to see a return to the insanity that was the summer of ’05. It’s not healthy and I think we can all agree with that.

    Let’s hope there are some great minds coming up with ways to get us back on the right track. No recovery is possible without a housing recovery.

  8. Philosophically I agree that nature will without a doubt bring the water to its proper level. But let’s remember that nature balances itself in ways that are not always kind to humans: an earthquake restores pressure balance in the crust of the earth, and disease thins out an overpopulated area.

    One can observe that no matter how hard we try to manipulate it, the market fixes itself, and perhaps that’s what it really has been doing the last couple of years; our tinkering with the market (e.g. societal greed, and by giving people loans they couldn’t afford) has led to this “economic disease.”

    At the risk of pushing this metaphor too far: by interfering so much with the free market are we creating a cure or an economic superbug?

    J

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