Why the Housing Market Will Recover in the Near Future
August 25, 2008
Today, I am going to give you hope. Do you see the light? Well, at least after you read this blog you may see a potential glimmer. This is part 2 of 2 for a blog series reporting on opposing views of the direction of the housing market. My previous blog identified various reasons ‘Why the Housing Market Will Not Recover in the Near Future.’ This blog will focus on the support for a turn around in the market.
Here are five reasons why the housing market will show new life in the near future:
- Prices are Falling at a Slower Rate
- Pending Home Sales Recently Increased
- Website Traffic Has Increased
- Loan Mitigation
- Government Intervention
Prices are Falling at a Slower Rate
There are numerous areas across many regions of the country where home prices are now falling at a slower rate. This is after nearly two years of decline. Most areas in Northern California that I conduct my business in, like San Ramon, Dublin, Pleasanton, Danville, and Livermore are no exception. The Standard and Poor’s S&P/Case-Shiller Home Price Indices has shown a slowdown in the fall-off in home prices in recent months. Other data also show signs of “bottom-like” symptoms for house prices.
New housing starts fell to 975,000 in April from a peak of 2.27 million in January 2006. Karl Case, co-developer of the S&P/Case-Shiller Home Price Indices, stated that in the past 35 years, in the three other times that starts fell from more than 2 million to under 1 million, housing market activity rebounded within a quarter.
Case, whose research has focused on real estate markets and prices for over 20 years, said certain regions of the country now look similar to when they bottomed in past down cycles. Among the signs of a turn in the housing market, on a year-over-year basis, the S&P/Case-Shiller 20-City Composite Index was down 15.8 percent in May, but on a month-over-month basis home prices only fell 0.9 percent, the smallest monthly drop since September 2007.
Pending Home Sales Recently Increased
U.S. home sales contracts signed in June unexpectedly rose across the country to their highest level since October. The National Association of Realtors said last week its Pending Home Sales Index, which is based on contracts signed in June, was up 5.3 percent to 89.0 from a downwardly revised 84.5 in May.
Website Traffic Has Increased
It has been reported that several real estate websites have seen an extraordinary amount of activity over the past several months. This is compared to the significant drop in traffic over the last year. Birdview Technologies President, Bedros Bedrosian stated, “The sustained upswing we’ve seen so far this year at the very least signals that buyer interest has returned to the marketplace at levels seen during the boom years. Buyer demand is not necessarily indicative of increased transactions, but it’s certainly a necessary ingredient in finding a bottom to the present downturn.”
Loan Mitigation
This is becoming a viable option for many people who are faced with a hardship and consequently the possibility of losing their home. Loan Mitigation is the step by step process of where a homeowner or a third party loan mitigator attempts to negotiate a modification to their existing loan. This is not an easy process and can take months upon months to complete. However, as banks realize the importance and cost effectiveness of loan mitigation, this is becoming a very viable option. By keeping people in their homes, this will limit the amount of short sales and foreclosures set to come on to the market and, at the same time, will limit the amount of write-offs that the bank will have to take. If you would like more information on loan mitigation options, please contact me.
Government Intervention
This is the biggest unknown of the five justifications. We have already seen the government’s willingness to step in and save faltering banks. They are also directly involved with sustaining the life of Fannie Mae and Freddie Mac. To what extent the government will step in and continue to aid consumers is yet to be seen. However, we do know that if past history is any indication, they may be willing to help when it is most needed.
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