This is taken from the forthcoming Spring edition of The REALTOR®, online now and headed to your old-fashioned mailbox by late February. When these all prove totally wrong at the end of the year I'll just blame it on the recession.
Four Fearless Predictions for 2009
1) Twin Cities home sales in 2009 will be 6 percent higher than 2008.
Why: Sales in the final months of 2008 were up substantially over 2007. In the fourth quarter pending sales were 11.7 percent higher—an increase of almost 1,000 sales. The upward pace isn’t showing any signs of slowing yet in the new year.
Plunging mortgage rates in November have stayed plungified, and a smorgasbord of available low-priced properties has brightened the overall affordability picture. Most experts believe that rates will stay low well into 2009. Home values certainly aren’t going to increase during the year. All of this points to a continuation of the conditions that birthed the recent upswing.
Any excitement you may feel here should be tempered, however. The continuing recession isn’t going to do wonders for consumer confidence or employment. With job losses mounting and more households feeling insecure about the future, sales growth will be held back from more lofty heights.
In sum, there are two major counter-weights at work in the market scale—healthy affordability on one side tipping the scale up, and the global recession on the other side tipping the scale back down. The key question for 2009 is “Which weight is heavier?” We’re leaning towards healthy affordability, but only slightly.
2) New listings in 2009 will decline by 10 percent from 2008.
Why: Traditional sellers not involved in foreclosure or short sale have dramatically stepped back. The number of traditional new listings in 2008 was 35.6 percent lower than in 2006—a drop of almost 40,000 listings.
The only traditional sellers who are able to sell in this market are a) consumers who purchased their house long enough ago to still have a net gain at sale or b) consumers who will lose money at sale but are both willing and able to absorb the loss. The population of each of these groups is likely to dwindle further in 2009.
Builders are sellers too, and construction activity went into free-fall in 2008 as builders wisely sat out the market correction to wait for the rebound. We should expect the flow of new construction inventory into the market to continue at a trickle in 2009.
Banks are sellers too, and lender-mediated foreclosures and short sales are showing some early signs of slowing, as fourth quarter new listings were 4.3 percent lower than the third quarter. That’s the first quarter-to-quarter decrease since 2003. Time will tell whether this trend continues.
3) New foreclosures and short sales in 2009 will decline very slightly from 2008, but will continue to grow their share of the overall market.
Why: We’ve already seen our first quarter-to-quarter drop in new lender-mediated listings, and county-level foreclosure data confirms a similar leveling trend. Major lenders have declared temporary moratoriums on new foreclosures while impending federal legislation aimed at homeowner assistance plays out. This time-out won't last forever, but the flow of new foreclosures has weakened.
Growing job losses in the regional economy, as well as a new round of ARM-loan resets (this time from the Alt-A segment) will prevent the decline in new foreclosures and short sales from becoming too substantial. Extremely low mortgage rates will help diffuse some of the effects of resetting ARMs, and recent analysis from the Minneapolis Federal Reserve Bank indicates that Alt-A lending activity was considerably less common in Minnesota than Subprime lending.
Regardless, we aren’t through the woods yet with foreclosures and short sales, and won’t be for some time. Traditional sellers are waiting out the market with increasing frequency, which means that lender-mediated activity will continue to grow in market share.
4) Twin Cities median sales prices in 2009 will be a two-act play.
Why: Home prices in 2008 looked remarkably different in the lender-mediated category than they did in the traditional market, and this will continue in 2009.
Asking prices on foreclosures and short sales have dropped a staggering amount over the last two years as banks start to price aggressively. Given the recent surge in buyer demand as well as a projected decline in new lender-mediated supply, it isn’t unthinkable to believe that lender-mediated properties will reach their price bottom in 2009.
The traditional market may be a different story. Even though consumers are showing a heroic willingness to pay a higher price for traditional “turnkey” properties that are move-in-ready, we shouldn’t be surprised to see values in that segment fall a bit further in 2009.
With heavily discounted lender-mediated sales comprising a larger portion of the market, the overall median sales price will once again decline in 2009. If foreclosures and short sales do reach a price bottom this year, we can expect some month-to-month price stabilization in the overall market in the second half of the year. But all in all, it will be another year of downward movement.
Epilogue
There’s been a lot of uncertainty in the housing market, and it won’t leave any time soon. But there is more cause for optimism heading into this year than there was last year.
Mortgage rates are near a decades-low. Financing is still available and with downpayments as low as 3.5%, no matter what we may read. Affordability is improved. Foreclosures are showing signs of reaching the downside of the peak. Home sales are finally on an upward trajectory. Inventory is in decline.
This is all happening as we speak.
Financing is still available and with downpayments as low as 3.5%, no matter what we may read
True, but a 3.5% DP many buyers are going to have to come to grips about almost being underwater immediately in some cases.
Posted by: Jason Sandquist | February 17, 2009 at 10:33 AM