2008 Real Estate market preview | foreclosures, declining markets, inventory, low rates
The housing market is grappling with one of its most difficult periods in recent memory but it will eventually stabilize and once again begin to move forward. The question on everybody’s mind, of course, is exactly when that will be. The answer may be later, rather than sooner.  From all the attention on the market’s woes, you might think homes are no longer getting bought and sold, but of course that’s not the case.  They are. Just not quite so many as in recent years.

When the totals for 2007 are in, the National Association of Realtors projects that some 5.67 million existing homes will have sold, the lowest number since 2002. But, despite all the drama, that is a falloff of only 12.5% from 2006. Looked at another way, for every eight homes that sold in 2006, seven sold in 2007, a difference that seems pretty modest.   The NAR, understandably one of the more optimistic assessors of the market’s future, says it sees the slump in sales of existing homes having bottomed out in the last few months of 2007. The bottom, it thinks, came as the credit and mortgage disruptions that struck in August took its toll on September and October sales.

With that behind, sales will trend up in 2008, the NAR says. Others are less optimistic, seeing the weight of foreclosures and tight mortgage availability taking longer the work through. For example, the Chairman of Fannie Mae recently said he sees home sales beginning to stabilize in the second half of this year, with “signs of progress” in 2009. But he also said that there are so many uncertainties that it is hard to tell how this
will play out.

The current sales slump is rooted in high home prices and in the mortgages that enabled them.  The current sales slowdown is not a typical one.  Instead of being the product of an economic recession or high interest rates, the usual case, the current sales slump is rooted in high home prices and in the mortgages that enabled them.  An inevitable adjustment in prices is starting to show itself in the latest home price indices. For the first time since 1995, house prices nationwide in the 3rd quarter of 2007 showed a quarter-to-quarter decline , but the drop was only 0.4%.  These figures are from the OFHEO, a federal agency that tracks prices changes from repeat sales or refinancings of the same property, which is the most accurate way to track home prices.  However, the OFHEO only tracks homes up to the conforming limit of $417,000, so it does not reflect the more volatile high end of the market. The recent slide aside, over the year beginning in the 3rd quarter of 2006, prices were still up 1.8% nationally.  And while the quarterly declines were widespread (20 states had lower prices), it was far from universal (prices in 30 states were flat or up!)Over the 12-month period, so far only ten states have had declines: California, Nevada, Arizona, Florida, Minnesota, Michigan, Ohio, Massachusetts, Rhode Island and New Hampshire.  The not-so-dire statistics probably don’t fully reflect all the stress being felt by home sellers. Individual home sellers of more expensive homes in some readjusting markets will want to take issue with the stats. Averages don’t mean much if you are one of the ones having to deal with a drop in the value of your home. And understand that the 3rd quarter 2007 figures were not registered in the full grasp of the credit crunch, so a more gloomy number is likely ahead.  The last quarter of 2007 was likely more negative as mortgage financing dried up and home sales plummeted.