Worm brought up some valid concerns about our future, and how certain events could impact the real estate market. Anyone considering a move should seriously consider any and all potential hazards, so let’s examine. My comments are in italics:
1. The Fed quits buying mortgages at the end of March. Interest rates go up a half percent.
Buyers should tolerate up to 6%, with home pricing likely to reflect impact of rates over 6%, but not dollar-for-dollar (sellers slow to react).
2. Option Arm begin to hit the market. That will do wonder for comps.
Very few neg-ams in area (less than 10%), and we could use the extra inventory.
3. We go into a double dip recession this fall.
Local market weathered the first dip pretty well, and buyers are impatient.
4. China economy burst. That will take down all of Asia. Tall office building still being built in Shanghai with a current 50% vacancy.
The Chinese will have to learn to adjust all previous assumptions, just like in USA.
5. A blow up the the 60 trillion derivative market.
Will make for sexy headlines, but as long as there are mortgages, buyers will shrug it off. Fed to rescue.
6. Banks this time don’t get a bailout because the American people are mad about their conduct in the past year.
After all we’ve been through, we’re numb. Will the masses riot? Support a renegade politician? Not likely that a renegade could get traction due to media collusion with mainstream politicians.
7. Home prices continue to decline like they did in Japan for fifteen years.
I could name several areas that already have houses selling for more than what they were selling for 12-18 months ago.
8. Buyers go back to buying houses 3 to 4 times their yearly income.
Already there, due to more stringent underwriting guidelines and big down payments being utilized.
9. Banks acquired too much shadow inventory and have to put more houses on the market than the market can handle.
Very few REO properties currently, and gov’t programs stretching out timeline nicely.
10. Asteroid hitting earth.
Highly concentrated disasters will have big impact on that area only, hopefully not here!
This list is a start, but for every concern there are several possibilities of how it could turn out. Take a look at all options, and decide for yourself what course of action is within your comfort zone.
The general complaint/argument that the government is propping up the market will apply to the MBS-purchasing, and as they turn off the spigot over the next six months we’ll see the impact, if any. CR expects a mortgage rate increase of 3/8 to 1/2%, and I think buyers will live with mortgages under 6%. The loan-mod madness is here to stay, and will prolong the insanity, and while that may be infuriating, there’s not much you can do about it except not participate.