2010- What to expect in Real Estate

February 10, 2010

2009 In Review

According to the Willamette Valley Multiple Listing Service (WVMLS) in 2009 every area of Salem/ Keizer saw a decrease in value. On average sales prices dropped around 8.3% for the year. With Keizer at 11.7% and West Salem at 4.54%. Even though prices decreased the number of recorded sales was nearly the same as 2008. The average sale price in 2009 for our area is $214,219. That is somewhere between 2005 and 2006 values. Fueling the market in 2009 were foreclosures, low interest rates, and tax credits. Foreclosure sales of REO properties jumped to 630 closed sales nearly three times the amount reported in the WVMLS for 2008. That is nearly the same amount of new homes sold at 668 this year. In 2005, which was the height of the new construction boom for our area, there were 2047 new homes sold.

What’s to come in 2010

As spring approaches I am anticipating another selling frenzy. For the third time, first time homebuyers will need to have purchased a home by April 30th and closed no later than June 30th this year to qualify for the $8,000 tax credit. I will be surprised if it does not get extended again. Buyers are on the hunt now trying to find the perfect first home at the best price. At this point many are ruling out short sales and moving toward finding a home that can be purchased in a reasonable timeline.

FHA has made several changes already this year. They have increased the cost to borrowers for this loan program by increasing the mortgage insurance premium (MIP) and will likely raise the cost of the monthly mortgage insurance premium as well. The upfront mortgage insurance premium increased from 1.75% to 2.25%. I asked a local lender Conrad Venti at Landmark Mortgage what percentage of his company’s loans were FHA loans and he stated it was roughly 48% of them. To put this in perspective we had 5869 recorded sales in the WVMLS this year. If 48% of them had an FHA loan that would generate $13,578,314.20 dollars for the Federal Housing Administration just for our little Salem/Keizer area on only Sales not including refinancing homes. FHA also removed the 90 day “anti-flipping rule” . This means the seller does not have to own the home for any period of time prior to the purchase of the home where the buyer is getting an FHA loan. This is encouraging to investors when looking to resell homes to a market filled with FHA approved buyers. To qualify for an FHA loan borrowers will now have to have a credit score of 580 or higher.

In 2009 the percentage of American home owners fell to 67.3 percent from a high in 2004 of 69%. This year I anticipate more homeowners to walk away from homes. Even though walking away from a home can knock 100plus points and make you ineligible for up to seven years 588,000 borrowers walked away from homes last year. Many homeowners no longer see the value of paying for a home that has lost 25-50% of its value since purchased. Moody’s Economy.com estimates the number of underwater borrowers will peak at 17.4 million in the third quarter of 2010. An even higher estimate comes from Deutsche Bank, which predicted in an August study that the number of homeowners underwater will grow from 27% to 48% of all those with a mortgage, by the time home prices stabilize. The Last major thing I am expecting to see in the Real Estate industry in 2010 is upcoming changes with the government supported Fannie Mae and Freddie Mac. Together they own or guarantee almost 31 million homes, nearly half of all mortgages in the U.S. The two companies which have been run by the government since they almost collapsed in September 2008, have required $11 billion in federal aid to stay afloat. Late last year the Obama Administration pledged to cover unlimited losses through 2012 for both companies, lifting an earlier cap of $400 billion. Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, said he supports replacing the two companies entirely. “I believe this committee will be recommending abolishing Fannie Mae and Freddie Mac in their current and coming up with a whole new system of housing finance” Frank stated at a hearing on executive compensation issues.

But there is some good news… which is why I decided to buy a real estate business in the current climate. We believe we hit near the bottom in the lower price points. Homes in the $225,000 or less ranges are actually close to a healthy market with reasonable turn times in our area. I believe in the long term value and opportunity in the real estate market. These are the days we will one day look back at in a decade and say what great prices, interest rates, and unbelievable opportunities back in 2009-2010.