Friday, July 2, 2010

When will this crisis end?

Real Estate Crisis, this hurts, how long will this last?

The Real Estate crisis is continuing to have the so called “experts” scratch their heads, acknowledging that this downtown is painful and asking “how long will this last?”.
Well, when this all began, back in 2008, those with the most optimistic view said that it would be over by the 2nd quarter of 2009. And since that did not work, all those asked expected that it would be over by the first quarter of 2010. That wasn’t the case either. In fact, mortgage delinquencies were up 36% in the first quarter of this year versus the prior year, but are actually down 7.5% from Q4. That's the first drop in mortgage delinquencies in well over two years. But new mortgage foreclosures in the first quarter were up 18.6% to a bit over 370,000. Now it appears that the housing down turn will last indefinitely or at least until a number of things happen.
Two key factors have me questioning the foreseeable future of the market:
• According to the Mortgage Banker’s Association National Delinquency Survey the total delinquency for all mortgages is at mind-numbing 14%. FOURTEEN PERCENT! How many of those will translate into foreclosures and/or short sales? Well, the answer depends on how effective programs like Home Affordable Modification Program (HAMP) become in assisting homeowners from escaping foreclosure. According to many industry analysts/experts, the current government programs are completely ineffective in producing long-term results and will need major restructuring/overhauls in order to reach their goals.

• The unemployment rate in the US is at 9.3 %. And states that help push/drive the economy are experiencing remarkably high unemployment rates: California is at 12.3%, Florida is at 11.2%, and Michigan is at a staggering 13.7%. And here in New Jersey its 9.6%. Which is higher than national average and its even higher in New Jersey’s urban centers. All those numbers are about 7-8% higher than

during the booming times of 2005-2006. How much stability and long-term appreciation in real estate can we expect if Americans are having a hard time finding and keeping work.
The growing numbers of the factors that I mentioned above help to increase the number of actual foreclosed homes on the market. Foreclosed homes sit on the market for as much as 180 days or more! This constant new crop of foreclosed homes plus the non foreclosed homes for sale combine to create a large glut of homes begging for buyers.
So where are the new buyers?
Well, mortgage rates are down to their lowest level in 39 years according to a survey released on Freddie Mac’s web site. You would think that this would bring in a flock of new buyers. That along with the $8,000 home buyer tax credit brought in some new buyers, but not nearly enough remove the glut of homes that are currently on the market.

So how long will it last?

The end is not in sight. As long as the unemployment rate remains at high levels and the housing glut continues to be feed by a new crop of REO’s (Real Estate Owned bank properties) monthly, the housing down town will continue. It’s a vicious cycle: continued high unemployment leads to more foreclosed homes which increases the glut of homes which continues to breed the real estate down turn.

But there is hope. Proposals from the President, Congress, and Community Based Organizations are all chipping away slowly at the problem. These proposals include, but are not limited to, financial stimulus, increasing jobs, decreasing the number of foreclosures and increasing the overall health of the economy. Each of these proposals will take time to work their way through the economy and eventually increase the health of the real estate market. Its impossible to say when it will end but it will take some time. It will take a lot longer than every one expected but it will end.