Market Impact: 2009 Watch List – Part 4

How Quickly US home prices stabilize?

Needless to say a very important factor as the genesis of the current crisis is attributed to the bubble this sector. It has seen a record decline of 18% in October08 on a year on year basis. As observed:

“The 20-city S&P Case-Shiller index has posted losses for a staggering 27 months in a row. In October, 14 of the 20 cities set fresh price decline records.

…Housing problems are at the core of our economic problems," … "yet, of the government interventions made during 2008, few were focused on housing."

Foreclosures have been worrisome

"October was really the first month to feel the full brunt of the credit crunch," ... "Up until the Lehman Brothers [bankruptcy filing on September 15], everyone felt relatively optimistic.

Plus, in many of the free-falling cities the majority of real estate sales consist of distressed properties such as foreclosed homes and short sales. These houses tend to sell at a steep discount to the rest of the market, and when they account for a large proportion of all sales, they can exaggerate the depth of price declines.”

Mortgage modifications have not helped

“…a recent report issued by the U.S. Comptroller of the Currency (OCC) found that 53% of borrowers who had their mortgages modified in the first half of 2008 were already at least two months delinquent again. The report covered 60% of the outstanding primary mortgages.

Modifications that don't involve some kind of principal reduction or somehow lower payments substantially "just don't work very well…We need to see lenders get much more aggressive when it comes to loan modifications.”

The effect of lowering interest rate need to reflect in new home sales

“…And although interest rates are currently extremely low - the 30-year fixed-rate averaged 5.14% … that's doing more to help people refinancing existing mortgages than it is to help new home buyers.

"Buyers still have to have a 20% down payment," … "and, in this environment, it can be hard to meet that criterion."

Experts observe that the tumble in homebuilding is expected to bottom out by midyear, but house prices will fall an additional 9.8% by yearend 2009, after a nearly 20% decline in 2008.

At the current levels the latent demand would surely be there. However no body would want to buy and see their equity go down. Therefore price stabiliszation would be the driver for home buying to start in right earnest. Keep you ears to the ground!


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