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December 2007 U.S. Real Estate Report—UCLA forecast: Economy may steer clear of recession. David Shulman, senior economist for the quarterly University of California, Anderson Forecast, stated in his outlook that the nation's economic performance is expected to be "almost as close as you can get to avoid the technical definition of a recession." That means low growth in the nation's gross domestic product—about 1 percent in fourth-quarter 2007 and in first-quarter 2008, according to Shulman's "A Near Recession Experience" report.
Home-price declines are expected to drop through the end of 2009 and perhaps further out, Shulman said. Florida, California, Arizona, Nevada and parts of the Northeast are probably most susceptible to larger price drops, he said. The Anderson Forecast expects the Fed to cut the rate from 5.25 percent to 4.5 percent by the end of this year. "The cuts will be undertaken to support the economy, not specifically to bail out the financial markets." The term "Bust" has been thrown around the media concerning the recent national real estate slow down. Nationally they have determined over 20 epicenters for this so called bust. But what is a "Bust" and by whose definition should we rely? And, according to the Federal Deposit Insurance Corp., boom does not necessarily lead to bust—only 17 percent of all housing booms ended in busts. Most busts were preceded by a significant stress in local economies, such as loss of jobs. A bust is defined as a nominal drop of 15 percent over five years. Having that type of decline—for that long—would require a dramatic event. Since we all were reading about the housing boom 2 years ago, and since all bust markets are subject to local economy, there is no bust nationally. And since prices have not dropped 15% nationally it would be impossible for this to be defined as a bust. At this point we might define it as a market downturn with a 17% chance of it turning into a "Bust" in isolated local real estate markets.
The National Association of Realtors October report stated that U.S. existing home sales are expected to be 10.8% below last year. Last month, the Association predicted an 8.6% drop from a year ago. This year's sales would be the lowest since 2002. Sale prices for existing homes are forecast to drop 1.3% to a median of $219,000 this year—a slight improvement from September's prediction of a 1.7% decline. Existing 2008 home sales should climb to 6.12 million.
A survey of 1,744 mortgage brokers by Campbell Communications of Washington revealed that in August 57% of homeowners trying to refinance their adjustable rate mortgages could not qualify. If this holds true and 13% of the Nations mortgages are in these exotic products, we could see over 7% of all mortgaged homes reach foreclosure in a worse case scenario. The biggest road block was appraisal values. If values continue to fall the foreclosures will likely continue to rise.
A Housing Predictor has forecast 3 million homes will be foreclosed through 2009 from the crisis as it spreads from subprime mortgages into conventional adjustable rate mortgages. The spill over into the conventional market is having a massive impact on investors with credit scores above 700 considered to be excellent credit risks. Many are investors who have purchased real estate in hopes of having a nest egg to retire on in the future. An estimated 5 million adjustable rate loans are due to be reset through 2009, and lenders estimate that at least a third are held by investors.
Despite a slow national real estate market, a recent survey showed real estate is the #1 choice for self-directed investors. Washington-based Guidant Financial Group conducted a survey of nearly 1,000 self-directed IRA holders and found that nearly 65 percent of the respondents said they were considering property as an investment for their retirement savings. Nearly 60 percent chose rental property, more than 36 percent chose foreclosures and pre-foreclosures and more than 28 percent chose raw land.
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