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The Worst of the Housing Slump May Be Behind Us - 2007-02-24 |
Last week we talked about the three primary economic reasons that most
buyers use to justify their purchase of real estate. In a nutshell, it's an
investment, it's a tax deduction, and it's an inflation hedge. But that
discussion failed to address the issue of timing, and the issue of when to
buy may be coming to a head in the weeks before us.
Now I don't own a crystal ball, and I have no spyglass into the future. And
to make matters worse, I fully admit that owning real estate has been a good
decision for me over the years, so I may be prejudiced in that direction.
But it's beginning to look more and more to me like we may have seen the
bottom of this housing slump last fall.
If that's the case, there are implications for you if you are even thinking
about buying a house anytime soon, so I thought we'd better take a look at
the market and see if it's time to make a move - literally.
First, let's separate existing housing from new home construction.
The existing housing market is the behemoth of the two, generally accounting
for 85 percent of total home sales, and the all-time big year was 2005, when
existing home sales topped seven million units. It looks like the total for
last year was down about 10 percent, to a projected total of about 6.48
million homes. Even so, 2006 was the third best year on record.
The new home construction market is much smaller by comparison, typically
accounting for only 15 percent of total home sales. But the media pays much
more attention to the new home numbers because this is the part of the
industry that employs literally millions of Americans.
The good news is this: on an annually adjusted basis, it looks like existing
home sales may have bottomed out last September, when we posted sales
amounting to an annual rate of about 6.2 million units.
Second, we need to talk about interest rates, because the cost of financing
is a major component of the cost of most homes. And if long term home loan
rates were to jump, it's generally agreed that the housing market would
probably go into the tank for a while.
Here again, we are getting an indication from economists that they believe
rates are likely to remain stable or rise only slightly throughout the
remainder of 2007, with thirty year fixed rate loans staying in the six to
seven percent range.
This factor alone has an extreme impact on affordability, with first-time
home buyers as well as those moving up the property ladder. And that is even
more the case as lenders begin to de-emphasize the so-called "exotic" loan
programs, while re-emphasizing the more traditional fixed rate plans.
And finally, the National Association of Realtors, to whom I owe a debt of
gratitude for assembling all these statistics, has one more bit of good news
up its sleeve:
The Pending Home Sales Index, a measure of the number of signed contracts
for residential sales, took a jump in December, indicating that closings for
late January and into February will be higher than in prior months.
A sale is listed as pending when the contract has been signed and the
transaction has not closed, but the sale usually is finalized within one or
two months of signing.
As a result of this "trending up" evidence, NAR Economist David Lereah is
now forecasting a gradual rise of existing home sales all this year and well
into 2008. He is more cautious about new home sales, predicting that
excessive inventories will cause a further slide during the first half of
the year, with a turn-around in the second half.
If these three predictions turn out to be correct, there will be a change in
the way the public perceives the housing market.
It will be clear that the bubble may have hissed a bit, but there certainly
was no "bust" as expected. In addition, as the excess inventory in the new
housing sector is absorbed, we are likely to begin the journey toward a more
balanced relationship between buyers and sellers.
Here are some possible implications:
* Economist Lereah is calling for an existing home sale price increase of
only 1.9 percent for all of 2007. But any price increase at all will be a
surprise to buyers who have come to expect major concessions from sellers in
the current environment.
I was surprised to see that the NAR chief economist also predicted an
increase in the median selling price of new homes, looking for a modest 1.8
percent jump. Here I would have expected some pull back, but only time will
tell.
* With interest rates predicted to stay in an affordable 6 percent range,
there will be little pressure to act now or risk losing out on a good
financing program.
While that may be the prevailing view among buyers, the truth is that any
major shock to the US economy might send interest rates into a less
affordable range, and leave fence-sitters wishing they had locked in a long
term fixed rate.
And finally,
* If these prognostications do come true, and the real estate market does
begin to firm up by this summer, the stage will be set for a less lopsided
market.
Buyers may find themselves wishing for the "good old days" of the current
buyer's market, where eager sellers hoped for any offer at all, and the term
"full-price" was noting more than a glimmer in the seller's eye.
The Realtors group recently launched a "Buy Now" ad campaign designed to
remind buyers that conditions for purchasing a home are now close to ideal.
If these predictions all come to pass, that condition will change, and the
current buyers market may soon be only a memory.
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LANDLORD SURVIVAL TRAINING
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Tuesday, February 28th
Being a landlord can be a rewarding experience. It can also be a difficult one if you don't have the knowledge and understanding of what the process requires.
Few schools offer degrees in property management, so most landlords learn "on-the-job" through acquired knowledge and on-the-job experience, essentially re-inventing the wheel. This is an expensive and depressing way to learn anything.
Whether you're a full-time landlord or just getting ready to purchase your first rental property, whether you are a licensed Georgia real estate professional or an accidental landlord, this seminar will help you improve your property's value, increase your cash flow and decrease your expenses, from attracting (and retaining) good tenants to maintaining your property to understanding your rights and obligations under the law.
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PROPERTY TAX REDUCTION WORKSHOP
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Tuesday, March 27th
One of the significant annual expenses faced by any Georgia property owner is ad valorem property tax. Depending on where you live, it can be as high as three percent of the property's fair market value, and it must be paid year after year after year.
As a result, efforts to minimize this expense are not only worthwhile, they are encouraged by Georgia law. The phrase "ad valorem" means that each property is taxed based only on its value, and no one is required to pay a penny more than the minimum the law demands.
At the Property Tax Reduction Workshop, real estate expert John Adams will review the system he has used for over thirty years to reduce valuations and assessments in Georgia counties and municipalities, saving himself literally hundreds of thousands of dollars over the years.
In this 3 hour information packed seminar, John will teach you how to:
1. Understand the legal process of Property Tax Assessment
2. Meet the newly uniform Tax Deadlines
3. File your own Property Tax Return with a realistic valuation
4. Document your PT-50R with facts to support your case
5. Proactively meet with your Appraiser to reach an agreement
6. Protest your Notice of Assessment in an Intelligent manner
7. Give the Assessor an Opportunity to Save Face
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10. Take Your Case to Superior Court if necessary
If you are not doing all these steps now, you are likely costing yourself hundreds or thousands of dollars a year. If you own just one house, you could easily save over a thousand dollars over the next three years. If you own properties valued collectively over a million dollars, you are literally throwing away your profits year after year.
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