Bottoms of Real Estate Markets to Hit 2009

Market Bottom By Mike Colpitts

The bottom of the real estate market will hit the over-whelming majority of housing markets in mid-2009, according to the newly issued Housing Predictor forecast.

Most markets are still working through their downturns and won’t see light at the end of the tunnel until sometime in early 2009. However, some especially depressed markets are already beginning to see slightly improving conditions and should see increased home sales through the summer.

Markets in California, Florida, Ohio, Indiana and Michigan are showing indications that some markets are nearing their bottoms, despite many of these areas being the hardest hit in the real estate crisis.

The large majority of the nation’s markets will experience bottoms in April, May and June of 2009 just in time for the summer selling season, according to the forecast. The Housing Predictor forecast is based on studies of more than 250 markets regularly tracked by researchers.

The longer than normal housing slowdown is due to the nation’s mortgage crisis, which was caused by Wall Street bankers working in conjunction with mortgage companies and other lenders packaging mortgages that were underwritten for millions of subprime and new creative mortgages, and then sold off to Wall Street investors. An all-time record number of mortgages resulted. The flow of money to fund the mortgages stopped when investors got word of the record breaking pace of mortgage exposure they were risking, and stopped buying securities in mass.

As markets undergo transitions from the real estate slowdown, markets will sustain slow sales activity and gradually pick-up volume. Confidence of the nation’s populous in the country’s leaders to help resolve the crisis remains weak. A Housing Predictor survey found an over-whelming majority of 81% polled said Congress will fail to resolve the real estate crisis.

Mortgage applications have fallen in recent weeks as a result of higher interest rates, which Housing Predictor expects to be slashed again by the Fed in further attempts to stabilize the U.S. economy. The fallout from the crisis now ranks as the worst economic disaster since the Great Depression, and has strained the overall national economy. Foreclosures are increasing in record numbers monthly.

Bottoms of real estate markets don’t occur in mass quantities. In fact, bottoms are historically scattered throughout the nation and are highly dependent on local economic conditions. Higher rates of unemployment in many areas of the country will contribute to slower bottoming. But areas that experience better employment levels will typically see an earlier bottom of the local market, and experience less severe pricing deflation.

All real estate markets are local in nature driven by varying local economic fundamentals, including job growth and development, business growth, local building and development, manufacturing and the sale of goods and services. The chief indicator of any local real estate economy is employment.

Many home buyers are waiting for the bottom to hit their market, but determining a market’s bottom is next to impossible, according to real estate experts, who suggest buying real estate sooner rather than later.

A multitude of factors are included in determining a local markets bottom, and there is no clear cut single factor that can be pin-pointed in these increasingly complicated economic times to determine the exact bottom of any marketplace. Prices have fallen as much as 60% in some particularly hard hit markets in California, Florida, Ohio, Michigan and other states.

The road to the recovery from the real estate crisis will take years to fully evolve. After all, the entire crisis developed over at least five years of shenanigans on Wall Street.

Despite political differences, it appears government assistance will help at least some of those threatened with foreclosure in time. But like in the nation’s worst most recent mortgage scandal, the U.S. Savings and Loan Crisis in the late 1980’s, the government took too long to respond to make any real meaningful difference for victims of the crisis at all.

As a result, the price of real estate in the majority of the country deflated or remained stagnant for more than a decade until normal market pressures of supply and demand began to pressure local markets. The average time table for market cycles has run from 7 to 10 years in the U.S. But the time-lines may have been skewed by changing the economic fundamentals as Wall Street sold record numbers of unregulated mortgages.

Only time will tell how long it will be before markets fully return to sustain healthy levels of real estate sales volume. One thing is certain, however, and that is consumers will always buy real estate. Everyone likes to have a place to call home.

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