You’ve seen and heard the news; home mortgage delinquencies and foreclosures are on the rise – in some areas to record levels. And while I wish I could assure you that the bad news is over, mortgage delinquencies and foreclosures are likely to continue well into 2008. That is almost guaranteed, given anticipated interest-rate resets on subprime adjustable loans. Those overly aggressive — and even reckless — lenders who completely mispriced risk deservedly need to be weaned out of the market. There is no such thing as high-yielding easy money. There is no such thing as a free lunch. High yields always come with dicey RISK!
When will the housing market get back on its feet? Imminently! There is a large pent-up demand accumulating that will be unleashed in a short matter of time – our best estimate is early 2008. Consider this year’s conditions versus that in 2005, the peak housing year. Home sales have already fallen by 1.5 million since 2005. Even if all the 1.4 million subprime mortgage originations were to disappear — which no one expects — then the bottom has already been reached in terms of any impact from tightening credit standards. In reality the level of subprime lending activity could be reduced by half at most, implying that the declines in home sales have been far greater than any tightening of lending availability. The additional decline in home sales can be attributed to other factors outside of the subprime loan disruptions. Is it jobs? A resounding NO. Is it due to lack of income and wealth? Another resounding NO. Is it due to higher home prices? NO. Is it due to higher mortgage rates? Surely some impact, but the rates are only modestly higher. What’s the explanation then?
The primary reason seems to be a lack of confidence. Constant reminders in the media of how “bad†the housing sector is has eaten into buyer confidence. However, that decision to put off buying a home comes with an “opportunity costâ€. Apartment vacancy rates have been declining and rents have been rising by 4.5 percent in the second quarter of 2007, the highest increase in five years. People have also been doubling-up by having additional roommates or moving back “home†with parents, as evidenced by a drastic slowing in household formation. Familiarity will inevitably breed contempt in close living quarters. It is only a matter of time before people begin to form their own households.
Locally, home sales are forecasted to rise 10% in 2007 and then make another rise of 5% in 2008. Home prices will be flat in 2007 and then increase 4% to 6% in 2008. With all the subprime problems out of the way by 2009, the momentum will inevitably strengthen further.
REAL ESTATE
If you would like additional information about the Denver Real Estate area in Denver Colorado as well as anywhere in Denver Metro Area contact us at 1-800-791-3990 ext 232.
Jeffery McClintock, is a real estate broker in Denver and prides himself on providing clients with professional guidance in all phases of residential new construction, including market research, product development, consulting, marketing and advertising. His personal mission is to bring to you a level of knowledge, experience, commitment, high standards and results to answer your real estate needs. He believes, the most effective way to provide superior service is to build a strong working relationship with you. His system includes regular consultations and feedback, which is the best tool for identifying and clarifying your real estate objectives and help define strategic solutions.
