To say that real estate took a beating in 2008 is a kin to saying a great white shark has some interesting teeth - it is a minor understatement. For many people, the question is whether 2009 will be any better for the real estate market?
If you lined up all the gurus in the world, you would have a line and not much more. In the world of real estate, the relevant gurus are predicting everything from a continued down turn in housing to an absolute turn around come the first quarter...no, second quarter...no, third quarter...well, you get the idea. Every guru has a different opinion, which means one will eventually be right and the others will have to ignore the fact they gave the wrong advice! In short, don't believe them.
So, what can we realistically expect in the real estate market in 2009? Nobody really knows, but there are two potential scenarios that seem the most likely. The first is not so good - the market continues to correct after the real estate bubble. The second predicts a bit rosier outlook in which the market turns around near the end of 2009. Let's take a closer look.
The "El Doom and Gloom" prediction is, unfortunately, supported by a number of basic truths. The first is it is not going to be easier to borrow money. At best, the banks are going back to closely scrutinizing borrowers. At worst, they will only give loans to the best of the best. Either way, this cuts down on the borrowing populace and, in turn, the number of buyers active in the market. Fewer buyers means less demand, which means prices continue to drop.
The second problem arises when we look at the current mortgage portfolios on the market. Everyone knows the nightmares spawned by the subprime and no doc loan failures. Well, guess what. There are a bevy of loans coming due in 2009 and 2010 that have to be refinanced or homeowners will be unable to pay them. This partial ARM loans are the monster in the closet nobody really wants to talk about. If a large percentage of them go into default in mass, it is going to be just as ugly as the subprime mess and would mean that 2011 would probably be the first time we would see the housing market recover in mass.
The second common prediction that 2009 will be the beginning of the turn around is rooted a bit in fact and a bit in politics. The fact element has to do with the Federal Reserve. The Fed, led by Chairman Bernanke, has gone all out fighting the current market problems. The recent lowering of the short term borrowing rate to essentially zero percent is a sign of a Fed that is ready to do whatever it takes. We can count on that attitude continuing into 2009.
Politics is the second element of the positive outlook. We have a pro-government President coming in with a Democratic Congress. Whatever your politics, this portends action by the government. Look for "New Deal" types of proposals to bolster the housing and banking industry. This is a President who clearly intends to hit the ground running, so you can expect action that will help in the short term. Whether it is good for us in the long term is, of course, another question. The overall debt of the country is huge, but it is generally agreed that action must be taken now to overcome the current crisis.
So, what do I believe 2009 will actually end up looking like for real estate? Unfortunately, I think it is going to be rough. That being said, I do believe certain parts of the country will see their markets stabilize a bit. Then again, my prediction is hardly any more accurate at this moment than any other real estate guru! Check back in a year to see who was right!
Stephen Teak is with CommercialLoanStop.com - your resource for commercial hard money loans for creative projects.
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