Predictions for the End of the Year.
Most people are very good at predicting the past but the prediction of the future is a bit more difficult. That said, I will make a try toward giving a prediction for the remainder of the year.
Available homes.
The market today is driven by the number of REO (bank owned) properties, both those that are being foreclosed upon today and the ’shadow’ inventory that exists with the banks since the moratorium over the past year (yes, it lasted a whole year, despite what you may have heard). Banks have said that they will be trickling properties on to the market and that is true, but to a lesser extent than one may think. A few banks are not releasing properties at all yet. Even a trickle is dependent upon the larger banks putting properties on market. I do not think that we will see anything like we saw last year until after the first of the year. This is due, I think, to government influence and the expiration of the $8,000 tax credit. Once the tax credit expires, I think we we see more properties released to market. I have asked a lot of people and no one can refute this logic.
The bulk of the properties available are short sales, partially due to the reluctance of the banks to complete loan modifications, despite the governments urging to keep people in their homes. Most of this is understandable, but many banks are very inflexible with regard to their lending standards, a pendulum swing form the easy money days. The banks want these properties sold prior to foreclosure, as a foreclosure costs between $30,00 to $50,000 and the proceeds are less than a short sale. Experienced short sale agents are few and confusion reigns. At any rate, short sales will be one of the more common real estate transactions through the end of the year and into next year.
Interest rates.
While the long term pressure on rate will cause them to rise, in the near term we should not see much movement. The fear is that with the government expansion of debt, that interest rate and inflation must rise, potentially to hyper-inflation rates. I do not think this will be true, as the the impact of all of the money injected into the economy is having no effect on the lending, business, and monetary cycles. Much of the money is being used in non-productive and transfer payments. Very little iss actual stimulus. The money that may be available is not being lent to business, home owners, etc. The result of this is that there really is less money in the economy than one may have predicted. Most of monetary expansion is dependent upon the ‘multiplier effect’. No multiplier is recieved if the money is given from government entity to another government entity, where it will be used up on temporary jobs and transfer payments to citizens. It is just a tax and spend transfer with little stimulus. In order for the money to expend normally, lending institutions must lend it, which is not happening at expected levels. there are many reasons for it, but it is enough to day that it is not happening.
Home Buying
As we come to the end of the year, the number of transactions usually goes down and it probably will this year as well, but not as much as it does normally. Many people do not buy during the holiday season which begins in just a few weeks. Additionally, many real estate agents take the bulk of the holiday season off, due to the lower number of transactions. This year will be different. For the past year, homebuyers have been challenged by this market to purchase a home due to the small number of available home and the more challenging lending market. Most home sell with multiple offers hoping to be the winner. The people who are shut out go on to find other possibilities. They are still looking for their home. Many agents who may have taken the holidays off may not be able to afford to do it this year, given the challenging market, lower prices (and lower commissions). I expect a smaller drop in transactions this year, but not to the same extent.