2010 REAL ESTATE FORECAST - BULL OR BEAR?
We decided to wait a little longer to issue our forecast because we wanted to review the economic data points prior to weighing in. But, before we say " BEAR or Bull " we thought it might be worthwhile to see how accurate our previous forecasts have been. Past accurate calls do not guarantee future results but it does add to our credibility!
So what will 2010 hold for the industry at large? Unfortunately more of the same. We see a two tiered market. The lower tier prices under $ 350,000 should be flat,to down 3% for the year. Homes in the higher tier over $ 350,000 will experience the most price softness. We anticipate a 3% to 5% down year for homes in this price range. Of course homes located closer to Seattle will suffer the least while homes further away from the core will suffer the most.
The reasons for the continued soft market:
Jobs: the biggest determiner of housing activity. When jobs are plentiful and wages are going up house prices trend upwards. Unfortunately we are caught in the reverse scenario hence housing values have remained soft. The chart below is from the Bureau of Labor Statistics.
CLICK TO GO TO BLS SITE
Our State is a tad better than the national average but our unemployment is running at 9.5% and this would infer U-6 of approximately 17%. The biggest concern we have going forward is that the worst is not yet over.
Shadow inventory: the next big reason for weakness in the housing market. Thousands of homes that have not been forclosed on are coming through the pipeline. This will add more supply throughout the year. Another batch of interest resets are also taking place this year and combined with the employment situation will exacerbate the already high default rate. A integral part of the price equation is supply and demand. Supply will continue to exceed demand as these properties stream onto the market. This will put downward prices on housing. For articles on shadow inventory for those inclined click here.
The percentage of homes that are currently categorized as a short sale, in distress or bank owned is running about 30% in many South King County areas. This is absolutely stunning and a huge reason why prices will struggle.
Higher interest rates and government misteps could also contribute to a tough 2010 but the verdict is out on both of these issues. Rates could jump not because of a better economy,but because the artificial support by the Federal Reserve will end. Continued support will bankrupt our country so we doubt this support will continue. Thus there is a reasonable chance rates will rise. We believe funding our massive debt will become problematic.
Only the best priced houses will have success in selling. So, if you are a seller we are moderately bearish. If you are a buyer we are moderately bullish. We are seeing good deals and are encouraging buyers to be active and telling sellers to be aggressive in their pricing.
The worst is over but market imbalances will probably continue for the next two to three years.
ADDITIONAL INFORMATION AFTER THIS REPORT WAS PUT TO PRESS:
NAR:
“Existing-home sales – including single-family, townhomes, condominiums and co-ops – fell 16.7 percent to a seasonally adjusted annual rate1 of 5.45 million units in December from 6.54 million in November, but remain 15.0 percent above the 4.74 million-unit level in December 2008.
For all of 2009 there were 5,156,000 existing-home sales, which was 4.9 percent higher than the 4,913,000 transactions recorded in 2008; it was the first annual sales gain since 2005.”
Don’t read too much into the increase in price — the big drop off in first time buyers likely skewed the purchases away from smaller, cheaper, starter homes.
Looking more closely at the data, a few interesting factors jump out:
• While the monthly data was horrific — down 16.7% — the more important year-over-year numbers were a solid +15%;
• On a percentage basis, the 16.7% monthly decline was the largest on record, dating back to 1968;
• Single-family home sales fell 16.8% (SAAR 4.79 million) and are 12.7% above the 4.25 million level in December 2008.
• For all of 2009, single-family sales rose 5.0% to 4,566,000.
• First-time buyers purchased 43% of homes, down from 51% in November, according to a NAR survey.
• Median existing-home price for all housing types was $178,300 in December 2009 — a gain of 1.5% higher vs December 2008.
• Total housing inventory at the end of the year was down 6.6% to 3.29 million existing homes for sale — a 7.2-month supply;
• Raw inventory is 11.1% a year ago, the lowest level since March 2006;
More data coming later this week . . . hat tip on the above information Barry Ritholtz
U.S. support for low mortgage rates set to end
Artificial support of mortgage rates may end as per our speculation. If this occurs more pressure will be exerted on home sales. Read entire article here.
And here
By Oliver Biggadike and Daniel Kruger
Dec. 28 (Bloomberg) -- If Morgan Stanley is right, the best sale of U.S. Treasuries for 2010 may be the short sale.
Yields on benchmark 10-year notes will climb about 40 percent to 5.5 percent, the biggest annual increase since 1999, according to David Greenlaw, chief fixed-income economist at Morgan Stanley in New York. The surge will push interest rates on 30-year fixed mortgages to 7.5 percent to 8 percent, almost the highest in a decade, Greenlaw said.
Investors are demanding higher returns on government debt, boosting rates this month by the most since January, on concern President Barack Obama’s attempt to revive economic growth with record spending will keep the deficit at $1 trillion. Rising borrowing costs risk jeopardizing a recovery from a plunge in the residential mortgage market that led to the worst global recession in six decades.
“When you take these kinds of aggressive policy actions to prevent a depression, you have to clean up after yourself,” Greenlaw said in a telephone interview. “Market signals will ultimately spur some policy action but I’m not naive enough to think it will be a very pleasant environment.”
Yields on the 3.375 percent notes maturing in November 2019 climbed 4 basis points to 3.84 percent at 11 a.m. in London today, according to BGCantor Market Data. The price fell 10/32 to 96 5/32. They have risen 65 basis points this month, the most since April 2004, as government efforts to unfreeze global credit markets lessened the appeal of the securities as a haven.
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