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2009-01-28 23:44:57

Housing May Have Corrected, But Foreclosures Still Pose Headwinds chief economist Irwin Kellner says that housing is darn near as affordable as it was in the 1980s. You read that right – prices have dropped so far for so long that housing has actually overcorrected.

He says that at the height of the housing bubble, median home prices sold for about 4.5 median incomes. With home prices dropping 23 percent while personal incomes rose 10 percent and mortgage interest rates at all-time lows, home buyers should be confident to get their feet wet again – if they can put some money down and document their income. The trouble is – nobody’s blowing that whistle yet, that it’s time to get back in the water.

That’s because some news being reported as bad is actually good for the consumer. The Commerce Department reported that new home construction is at its worst nadir since 1959. Ground broke on a little over 900,000 units in 2008, a 33 percent drop since 2007.

Homebuilders are still down in the mouth – less than 8 percent of surveyed homebuilders feel good about the current market. Even worse, homebuilders gathered at the International Builders’ Show in Las Vegas, believe that things won’t improve until 2010.

David Crowe, chief economist for the National Association of Home Builders, predicts that home sales will fall another 14 percent in 2009, while construction will fall another 29 percent.

While that’s bad news for builders, it’s good in that standing homes are more likely to be absorbed. Incentives will continue for homebuyers. It’s also good news for the existing home sellers – less competition. 

Providing a tailwind for homebuyers, mortgage interest rates have risen slightly, but dipped below 4.96 percent for benchmark 30-year fixed rates for the first time since 1971 a couple of weeks ago, according to a Freddie Mac statement.  But the low rates did little to spur housing sales – most of the applications were for refinancing existing mortgages that week.

But there’s still a serious headwind out there – foreclosures. RealtyTrac’s 2008 U.S. Foreclosure Market Report, which includes default notices, auction sale notices and bank repossessions reported nearly 3.2 million foreclosure filings for 2008. While not all of those homes were sold as foreclosures, they impacted the market mightily – about one in three homes sold in 2008 were foreclosed homes.

"We’re watching that,” says Steve Cook, editor of the Reecon Advisory Report, “It’s a record number of foreclosures, and we’re  looking at the impact of the economy. The subprime number is over, but one-third of homes are underwater.

“If you lose your job,” he continues, “you still have to pay, and they go into foreclosure.”

So what’s the solution? “We don’t have answers right now, nobody knows what to do, except to throw more money at it,” says Cook. “Frank and Paulsen are fighting over who should get the money to make those loans work, but Reecon did a survey of 1000 consumers that found 3 to 2 don’t want bail out money to go to pay mortgages.”

Investors don’t want to see principal brought down because they’ve already invested in mortgage-backed securities and don’t want to see them devalued.

Cook says lower mortgage interest rates could help, but over 50 percent of the homesellers who defaulted in 2008 and received a workout plan defaulted again by the end of the year. 

Blanche Evans is CEO of Evans Emedia, Inc. and publisher of The Evans Ezine. As an award-winning journalist, Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and twice recognized as one of the industry's most "Notables."   


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