Market Action 2008 Year in Review

There is real good news out there right now:

In the past few weeks, one escrow officer I talked to closed a transaction with a 30 year fixed Mortgage which had an interest rate of 4.25%, no points paid! We got other emails from mortgage brokers publicizing 4.375% interest for the same kind of loan. Also in December we saw the first offering of jumbo mortgages again- 6% up to a million dollars, 6.25% up to $3 million. Although rates are currently vibrating up and down, they are staying under 5%. The stated intent of the economic engineers is to maintain a rate of about 4.5% interest to help with ARM rate adjustments coming this year, and to offer the ability to refinance safely from oppressive loans into manageable loans. This is also intended to ignite buying in the housing sector. If there is anything which will motivate buyers and investors to buy it is an historically low interest for 30 years!

We also saw the complete overhaul of FHA this past year. Its scope was broadened to make it useful for many more people, it became more flexible and user-friendly, and although it raised its down payment requirements, you can still buy a home with 3.5% down. It is true that documentation and credit scores actually mean something again but I think we all want to avoid going through this again. For select areas (everywhere but McMinnville in Yamhill County) first time home buyers can still get a loan with 100% financing through USDA.

So what is the reality as we start a new year?

Interest rates are historically low and inventory (selection) is historically high. Seller fatigue has created some really great deals and most have become ‘motivated and flexible’. The country has been through a deep housing correction where some areas have declined in price more than 30% of the value of less than two years ago. Other areas, such as our area, has had modest corrections overall and more significant corrections in ‘hot’ areas. There is just one ingredient that is yet needed: confidence. Buyers are leery of another blow of bad news and want to have confidence that things are truly on the mend (no more meltdowns, Madoffs, or mortgage surprises).

We know there are buyers out there. We see a great deal of activity on our search sites and we talk with a healthy number of them. Many more are buyers waiting to sell. When the ‘all safe to go back into the water’ signal is given, we think housing sales will rebound nicely. We expect to see investors and ‘lowball-ers’ become active first and they will buy out the desperate and go after all the best deals. First time home buying should remain strong for those who have not destroyed their credit. As more people buy the activity of the sector grows exponentially. The cycle usually recovers from the bottom up. High end homes may take longer in the process but luxury homes also have some immunity from all the market conditions.

Remember that for over 100 years of tracking have shown that the real estate market is cyclical. It always goes down and up, hot and cold. In the long view it has always been growing and expanding and rewarding those who participate. We have been down and cold (or should I say frozen). There are good reasons to believe we are on the edge of recovery.

What about the bad news?

Most people we talk with understand why no one will buy now. Since September who would? Wouldn’t you also wait to see if the sky is falling or not after seeing what we have seen especially during the past 4 months?

The new wave of bad news revolves around the economy. Businesses are suffering badly as a result of the sub-prime mortgage mess and particularly the financial industry meltdown. Both caused a cessation of the normal flow of credit and now both are bringing values down across the economic spectrum. Job losses are hurting many people. This cannot be glossed over and it will have a toll on the housing market.

But the bad news is not evenly distributed. Most (by far) of the bad news about the housing sector related to certain markets (California, Las Vegas, Florida, and Phoenix). The economy is also much worse in those areas plus places like Michigan, Ohio, etc). In Oregon, we have done better than most; in fact for over a year we were one of the top three markets in the nation for pricing stability and low numbers of foreclosures. Time is taking its toll on us.

But… although the economy is still in decline, we think the housing market is poised to recover.

What to do?

We think sellers need to stay on the market now. We intimately know how painful this has been. Do not worry about how long you have been on the market; this is an affliction which is common to almost everyone. We are working with our clients to refresh their listings and rework their market analyses. There is some value loss over the last year, about 5% on average in Yamhill County. Amy will research particular properties and price ranges and we will meet with you this month. The most important priority is to be competitively positioned for selling. Buyers are savvy and knowledgeable, and they are looking for good and safe value.

Buyers should buy! If I did not have all my money tied up in a brokerage I would jump at these historic opportunities. We have not seen such an ideal situation for buyers here in my entire adult life. I remember the 21% mortgage rates of the early 80’s and also when we hoped and dreamed and wished to buy for the amazingly low 8% rate. Are we at the bottom? I think we have hit it. But the truth is that in all markets no one actually sees the bottom. You only know it was the bottom in retrospect. For many buyers, they may move too slowly and arrive too late. It is a strange herd mentality which when everyone is buying we buy, and when everyone is selling we sell. A better way??? Buy when everyone is selling and sell when everyone is buying. I think I stole that from Warren Buffet.

We promise to be faithful to all we promised our clients, buyers or sellers. We have done so in spite of the market conditions and it has cost us dearly. Still, you hired someone to do the job without compromise and with your best interests at the forefront of our minds. We are also investing a great deal of time and money to be flexible, creative, and to stay on the cutting edge of what it takes to get the job done. We have new ideas and mediums to implement for 2009 and we are excited about the prospects. We thank you for your loyalty and trust during this time when we know there is a great deal of frustration to our clients.

Advertisement