Tired of watching your home’s value plummet? Richard DeKaser, chief economist for National City Corp., has some reassuring words for you.
“The housing sector is, in my opinion, improving,” he says.
DeKaser doesn’t necessarily believe a full-fledged housing rebound is in the cards anytime soon. And he stresses that some markets are likely to stabilize sooner than others.
“It depends most importantly on geography,” he says. “Some markets, I believe, are already at bottom, like places in the Midwest, like Ohio and Indiana. Other places like Florida, Washington and Oregon have a ways to go.”
But he says the nationwide rate of price declines has slowed significantly in recent months, and he believes the longer-term outlook for the U.S. overall is more promising.
“As a general rule, I do expect prices to hit a bottom sometime late this year or early next,” he says.
That’s good news for homeowners and the larger economy. DeKaser says his research shows that the housing slowdown has been stealing about 1 percent from the U.S. gross domestic product.
“A full percentage point drag is a lot,” he says.
Rising commodity prices have reduced GDP, or gross domestic product, by an additional 1 percent, DeKaser says. However, DeKaser does not believe the economy is in recession.
In fact, he predicts that the drags associated with housing and commodities will lessen in coming months, with the economy showing improving growth throughout 2009 and even more robust growth in 2010.
Bob Walters, chief economist at Quicken Loans, is less sanguine.
“I think we’re in a recession,” Walters says.
While the fundamentals of the economy remain “decent,” ongoing problems in the credit market threaten to derail everything from funding for small businesses to college loans and new home construction, Walters says.
“The economy is run on credit,” Walters says.
Tightening credit conditions can spiral into a vicious cycle that grinds away at economic growth, he says.
“A healthy economy can be taken down when credit seizes up,” he says. “We’re not there yet, but we’re close.”
Until and unless the government is able to restart the credit cycle, the economy remains vulnerable.
“It’s a very challenging problem to solve,” Walters says. “It’s not as though people aren’t trying.”
A robust real estate rebound would be the best cure for what ails the credit markets, he says.
For that to happen, home prices will have to bottom out or actually rise for several consecutive months, and the inventory of homes for sale on the market will have to fall to six months or less.
“At that point, you should look to start to see things improve significantly in the future, because lenders will become more certain that home prices have stabilized, that collateral is worth what they say it is worth,” says Walters.
“Until then, fear is gripping the market.”
Opportunity in the gloom
Despite these challenges — or maybe because of them — Walters believes now is a great time to shop for a home.
“This is a once-in-a-generation kind of an opportunity,” he says.
Home prices are falling so dramatically in some markets that smart buyers are able to drive down prices to levels unimaginable a year or two ago, he says.
“Right now you can go in and the buyer has 100 percent of the negotiating power,” Walters says. “So in many cases, they can negotiate incredible deals.”
As an example, he cites the South Florida market.
“You’ve got 60- to 120-month inventories of just thousands and thousands and thousands of unsold condominiums and things like that,” he says. “That will only burn off when people take prices to levels where people are snapping them up.”
Home prices in South Florida, the Inland Empire of California, Las Vegas and other formerly red-hot markets will continue to fall until inventories drop to the six-month level, Walters says.
“Just by definition they have to (fall) to clear the market,” he says.
DeKaser agrees that now is a good time for home shoppers in many regions of the country to set their sights on a new home.
“For those who have been trying to get the best deals, I think it’s probably time to start looking,” he says. “But there should be no sense of urgency.”
Despite the credit crunch, DeKaser and Walters say that borrowers with sound credit and other solid finances should have few problems landing a loan.
“For people who have good credit histories and who have a decent down payment — I’m talking 20 percent — they shouldn’t have a problem,” DeKaser says.
Who is left out?
However, DeKaser and Walters caution that not everybody should buy right now.
Walters says potential homeowners must have a time horizon long enough to minimize the risk of further declines.
“It can’t be something that you expect to flip in a year, because it’s entirely possible that home prices could continue to fall,” he says.
In addition, people with bad or bruised credit and other shaky financials are unlikely to get a loan today — or tomorrow, for that matter.
“The financing for folks like that is not going to come back,” Walters says.
Instead, Walters and DeKaser urge people with shaky finances to work on improving their credit and to save up for a bigger down payment.
DeKaser says some people with poor finances who nonetheless are fortunate enough to have long-standing ties with a lender also may be lucky enough to squeeze into financing.
“To whatever extent these folks have long-term established relationships with existing lenders, that’s always helpful,” DeKaser says. “If you’ve got a bank you use in the community on a regular basis, that does count for something.”
So, while a home purchase might not be right for everybody, patient and selective homebuyers may find housing gold in the midst of the most challenging real estate market in decades.
Walters says the upside is potentially as big for today’s home shoppers as it was for stock pickers after the Black Monday crash of 1987.
“I think this is one of those things that when you look back on it in 10 years and you bought a home now — especially a home where you bought it and negotiated a tremendous price — you’ll be like, ‘Yeah, I remember 2008 — it was a once-in-a-lifetime opportunity,'” he says.
For the second straight meeting, the Federal Reserve kept interest rates unchanged. The central bank’s decisions do not have a direct impact on mortgage rates, so potential borrowers should not worry about how Fed inaction will impact their loan.
Meanwhile, falling home prices make now a good time for some people to consider shopping for a home for the foreseeable future.
“Home prices are going to continue to fall until the inventories burn off,” says Walters.
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