2009 Housing Market Predictions

The upcoming year will likely be rocky, but an improvement over 2008
By Kris Berg, FrontDoor.com Published: 12/02/2008

Real estate markets are cyclical; this much we know. We are all also painfully aware that we are currently experiencing a down cycle. Home values have declined across the country, dramatically in many regions. Experts and veteran agents agree, however, that this correction is different. It is much bigger than anything most of us have experienced in our lifetimes. This is because we all got a little crazy. Lenders got a little crazy throwing money around with no strings attached, and homebuyers got a little crazy overextending their credit and getting a cash advance on their equity, all on the premise that home values would continue on a skyward trajectory. This, of course, did not happen.
The talk around the water cooler lately is about what the housing market will look like in 2009. More specifically, the big question is, "When will we get there?"
I do know a few things with certainty. I know we will have volatility until we stabilize; I know prices will continue to decline until they stop declining. OK, I confess I'm a coward when it comes to predictions, especially when I don't control the variables.
First, there are those pesky external variables. Global events, jobs reports, and that wacky Wall Street, to name a few, can all influence the direction of the housing market. And those external factors feed that other important variable, consumer sentiment.
To predict the future of the housing market essentially requires that we are able to predict human behavior. I can't even predict what I will be cooking for dinner tomorrow. Nine out of ten dentists have never been able to agree on much of anything, and ask a dozen real estate agents about the future of the housing market, and you will get as many different answers.
Yet, in the spirit of the holiday season, I will be uncharacteristically bold and venture a few real predictions. If I am wrong, I will just blame all of those little variables beyond my control. "I didn't see that one coming! That changes everything!" On the other hand, I could be right, in which case I will spend 2010 gloating insufferably.
Home values will continue to decline throughout 2009, and declines will be greatest in the higher priced areas and among higher priced properties. The higher they go, the harder they fall, certainly, but less favorable loan limits will also play a part. Mortgage lending has generally been a two-tiered system. Lower limit, "conforming loans" (loans which conform to underwriting guidelines for Fannie Mae and Freddie Mac) carry lower interest rates, because they are considered less risky and can be sold on Wall Street, while larger "jumbo loans" involve higher interest rates. In 2008, the Government increased the loan limits for conforming loans to $417,000, and established higher limits yet for high-cost regions, effectively resulting in a new three-tiered system. As a result of the government's Stimulus Act, this three-tiered system will continue in 2009, the difference being that while conforming loan limits will remain at $417,000, the limits for higher-cost regions will be less than they were this past year.
While home values will continue to decline, the rate of decline will be lower than last year. We are already seeing the price decline trend line heading in a more horizontal direction. Interest rates remaining low will be a contributing factor. Absent a Presidential Cabinet position or a degree in economics, I cannot truly begin to know where interest rates will be in 2009, and even then my odds of being right will be only slightly better than if I had used my Ouija board. However, all indications from the "experts" are that we will be ringing in the New Year with more favorable rates.
Families will continue to lose their homes in painfully large numbers, but the numbers will be fewer. We are working through the subprime loan legacy of the first half of the decade, but we still need more time. Our free-lending, free-spending hangover will unfortunately continue. Too many troubled loans remain and until these are behind us, downward pricing pressure will continue. Government assistance programs and more willingness on the part of lenders to restructure loans at risk will help in the recovery, but we aren't "there" yet.
Home sales will increase. On the brighter side, declining home values have resulted in more affordability and opportunity for the homebuyer. Lower prices mean renewed buyer interest which, in turn, means opportunity for the home seller. I am seeing buyer activity and interest spiking in my area. But, even this brighter side comes with strings. Stricter lending guidelines mean a smaller buyer pool. The new rules now require that in order to qualify for a loan, buyers must make an actual (often 15 to 20 percent) down payment and, if that isn't bad enough, must demonstrate the ability to make the resulting mortgage payments. These new rules are ironically the old rules, and we should get used to them. They will be with us for awhile.
In short, 2009 will be a year of opportunity for qualified buyers as prices and interest rates remain low. Sellers will also benefit from renewed buyer activity and interest. But, 2009 will be more of the same, just to a lesser degree. I don't think we will turn the corner next year, but we will get a little closer to the intersection. And when we do get "there," there will be a place we have been before, a place where a home is not viewed as a lucky lotto ticket but as shelter, security, a lifestyle -- and a privilege.

For more information about Florence Oregon Real Estate give me a call 541-991-7794 or visit my website www.maureensellsflorence.com