Dominated by value
No one can accurately predict when home prices will begin rising again. But The New York Times found someone in the mortgage industry who points out that prices will probably keep going down.
This is what The New York Times reported after interviewing Christopher L. Cagan, Ph.D. director for research and analytics at First American CoreLogic, a mortgage industry research firm in Sacramento, Calif.:
“He studied two databases with information on 58 million mortgages and sees a wave of mortgage resets moving through the system, first the mortgages with low teaser rates, followed by subprime loans, and finally, as the decade comes to a close, the loans to homeowners with good credit.
This pig-through-the-python transition is not enough to hurt the overall economy—about $112 billion will be lost, he calculated— but it is a world of pain for the households involved.
Almost all of the teaser loans issued this decade—those mortgages offered for less than 3%—have reset in the last two years. Rates for most of the homeowners with good credit who obtained adjustable-rate mortgages during the boom years of the housing market will reset from 2008 to 2010. Cagan said he thought only 7% of these loans would default because of the reset.
He concluded that ‘2008 is the pinch year.’ If he were a gambling man—or a real estate investor, but really, what’s the difference?—he said he would start buying residential proper- ties in 2009.”
If you are considering selling in the next two to three years, the price you get right now, even with discounting your home in a market with too much inventory and too few buyers, might be substantially better than the price you can get in 2009 or 2010.
Three kinds of sellers
There are going to be three kinds of sellers in the market over the next few years:
1. The realtors and real estate investors who bought with the idea of quickly “flipping” or reselling the home to make some money. They have to try to get out at their original investment price, but nearly all of them are already underwater on that investment.
2. Those very unfortunate people who bought in 2004 or 2005, right when home prices hit their peaks, and who have to sell now because their mortgage has increased beyond their means, or because they have to relocate to another city.
3. People who have held their homes for several years, and who, when selling at 2003 or 2004 prices, will still see a huge return on their homes because of the unprecedented increase in home values from 1998 through 2005.
The question facing you is whether selling into this difficult housing market will be more or less costly than selling in two or three years. Looking at the ever increasing amount of inventory, there are very few realtors who are saying, “I’d wait until next year because I believe prices are going to go back up.”
Growing inventory
In AOL’s Money & Finance, Ingo Winzer, president of The Local Market Monitor LLC, makes this outlook for Chicago: “Above-average home prices and the modest state of the local economy will result in slower price increases in the future.”
The Money & Finance forecast isn’t much different in other major cities like Baltimore, Boston, Detroit, Denver, Kansas City, Miami, Philadelphia, Washington D.C.
In other words, don’t expect the kind of gains we’ve seen on residential real estate in the past. Whether you sell now or later, you’re in a much better position than sellers who got caught up in the excitement two years ago only to discover there is no way to get out at the price they paid to step into the market.