Mid-Year Update 2008

 

In December of 2007 we predicted that 2008 would bring a year of declining housing prices, estimating that a three percent decline in prices would be possible. Our entire forecast can be read here. The mid- year report card is in and its not good. Turbulence in the market has grown.

 

The reasons for the continued turbulence in the housing market is:

·      A recession is underway and it will be long and protracted. We believe it will last until the end of 2009.

 

·      Interest rates are on the way up. Our nation’s fiscal house is in disarray and higher rates will be needed to attract capital to fund our burgeoning debt. We expect continued upward pressure on long term interest rates.

 

 

 

 

 

·      High house inventory levels: there are more sellers than buyers.

 

    * These are nationwide stats. King County stats can be viewed here. Pierce stats can be viewed here. King County has a 6.2 month supply of inventory. Pierce County has a 7.5 month supply of inventory. These are better than the national average but bear watching for further inventory build.     

   

·      Foreclosed properties are impacting neighborhood values and foreclosures are increasing.

·      Lenders are restricting lending. Marginal buyers are now less able to buy. In addition, numerous programs have been eliminated entirely thereby diminishing the available pool of buyers.

·      The fear of housing continuing to drop. This is a natural mind state where buyers are concerned about buying because they believe that prices will drop further.

·      Wages are not keeping up with inflation. Housing cannot continue to rise without wages rising. It is unsustainable.

So where do we go from here?

We are revising our 3% decrease in prices to up to a 10% fall in house prices in 2008.  The U.S. Government and the Federal Reserve are currently enacting fiscally irresponsible policies that will raise interest rates. These taxpayer-funded "rescue" missions, are starting to adversely impact the bond market resulting in higher interest rates. If these fiscally irresponsible policies continue, it is our belief that next year may result in further price declines. In any event we expect minimal if any house appreciation for at least three years. Deleveraging, the unwinding of debt, is a long and painful period. Our goal is to tell the truth and not be cheerleaders. Feel free to email us or call with any questions regarding our current real estate market.   

 

   Easy to understand history of what has happened !

 

 * The chart above was intended to illustrate stock market behavior but it certainly applies to real estate as well.

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