According to the punditry outside of the real estate industry, housing will remain a big risk in 2010 for the national economy. This is not great news for the real estate industry, yet we need to talk about it.
The prevailing wisdom is that Spring, 2010 is the time the market will turn around in the real estate circles. Of course, at this time last year we were expecting the turning point to be Spring, 2009.
But the harsh reality is that the market is too weak, there is too much exposure from foreclosures, and the economy for the private sector has not improved at all. In this situation it is hard to see how real estate will rebound.
The second half of 2010 showed some stabilization in the market, but we have to be honest and recognize that many of the underpinnings of this market were not natural. We had historically low interest rates, government subsidies for first time buyers, and a large amount of properties sold at a discount. These factors will diminish in 2010.
With unprecedented government spending we are looking at interest rates that should rise through the year. The first time homebuyer program was extended, but not till the last moment. The motivated buyers will have already bought and there should not be much activity for the stragglers.
There is a high correlation between “under water” mortgages and default rates because borrowers have less incentive to make their payments if they are in a negative equity position. Interest rate resets threaten to aggravate the problem of defaults and foreclosures if the amount of the mortgage payment is increased, which is typically the case in a reset scenario. Renewed weakness in home prices in 2010 would be a significant negative for the financial markets, because it would create new problems for the financial sector, and place addition stress on household balance sheets, which would in turn depress consumer confidence and spending. via Seeking Alpha
So my advice to agents reading this is, keep your belt tight, focus on the long term, and work hard. There are still homes that will be sold. The part time or unmotivated agents have all left the building so you are now competing with true professionals and there is not the bloat that has surrounded the industry. There are opportunities, you just have to work to find them.
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Very true, great post!
Unfortunately, I’d have to agree with this 100%.
However, recovery will also be by region not as a whole. So one region could recover this year while another region might take 3 more.
2010 may be the year of REO homes for sale. As you read above, with more foreclosures than ever, this means more REO. New business models, like http://www.gohoming.com will begin to emerge with marketing of REO listings online. Real estate pricing is not yet solved. Adam Smith and the invisible hand!
Your closing advice is excellent – tighten the belt, long term focus and work hard. Something that impacts all three areas that I’d add include increasing your knowledge of real estate investing in a new world. I just finished reading The Best Real Estate Investing Method…Ever! by N. Xavier Arnold and his principles for successful investing are good ones to learn about and follow.
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