AVP/Sr Mortgage Originator
Alaska USA Mortgage AK#157293
Phone: (907)261-3458 Cell: 223-4440
License: NMLS Unique Identifier #203077
Real Estate in 2008:
What Does the Future Hold?
2007 was a historic year in the real estate and financial markets, thanks to the highly-publicized subprime collapse and subsequent credit crunch. As the end of the year approaches, we at YOU Magazine were wondering, what could possibly await us in 2008? With this in mind, we turned to mortgage industry icon Bill Dallas for insights into what we can expect next year and, more importantly, what buyers, sellers, and refinancers need to do now make the most of the opportunities in the real estate market.
Bill Dallas, Chairman of Dallas Capital, is an innovative thinker who's been a leader in the mortgage industry for over 25 years. Bill has a well-earned reputation for developing creative products to expand home ownership opportunities. More importantly, Bill's uncanny knack for foreseeing the future of the industry is astounding, and we are pleased to be able to share his amazing insights with you.
As you can see, interest rates aren't much different now than they were in January of this year. The average mortgage rates in this chart remain generally unchanged.
According to Bill Dallas, mortgage interest rates in 2008 will likely remain unchanged as well – or even drop a bit lower. Adjustable Rate Mortgages (ARMs) may see a little more volatility and could potentially be pushed down if the Fed is forced to lower short-term rates again in an effort to stimulate economic growth. One thing to remember, however, is that Fed rate changes do not necessarily equate to fixed-rate changes. This means that, even if the Federal Reserve does lower its interest rates in 2008 (as Dallas suggests in his video), don't expect fixed-rate mortgages to fall as well. In fact, depending on the degree to which the Fed may be forced to act in 2008, current fixed-rates may be the lowest we'll see for some time – especially after 30-year fixed rates dropped to a 2-year low in late November.
Home sales, of course, have been declining. However, there is some good news about the national economy that frequently translates into good news in the real estate market. For instance, 5.4 million jobs have been added nationally since home sales peaked in August 2005, despite the nearly 200 financial institutions that went out of business or laid off employees this year. True, the dollar has suffered a major decline in 2007, but the typical effects of a weak dollar (e.g. higher inflation and higher interest rates) have yet to appear in the national economy. In fact, some analysts say this "weakness" of the dollar in 2007 has actually made American products more competitive in the global markets. With nearly 4% growth in the nation's gross domestic product (GDP) in the last two quarters, this seems quite accurate – but for how long?
Interestingly, the weak dollar is also proving to be quite attractive to foreign investors seeking American real estate. According to a survey from the National Association of REALTORS® (NAR), while many Americans are waiting on the sidelines for the market to bottom out, foreign buyers (especially from Mexico, Britain, and Canada) have taken action, buying second homes in the U.S. at a major discount.
Real Estate Prices
Just imagine if you had purchased stock in Google™ in March 2006, when prices pulled back from a January high of $471.27 to a bottom price of just $340.93 per share, a significant discount in just three months. Twenty months later, however, that same stock has now fully recovered, reaching a new high of $741.79 in November 2007. With returns like this, would it have made much of a difference if investors had waited for the absolute bottom?
Bill Dallas isn't the only one predicting that real estate prices are nearing the bottom. According to the National Association of REALTORS® (NAR), by the first quarter of 2008, price declines will be "minimal as current widely available mortgage products filter through the system." In 2008, NAR further predicts that "many markets in the middle part of America" could even see some decent price gains. The increase may be nominal, but if you plan to hold on to a home for a few years, why wait, especially when interest rates are near historic lows? Whether this is the exact bottom or not, you could still see appreciable gains several years from now, while those who sat on the sidelines will be scrambling just to get in the game.
By taking action now, you can benefit from the many opportunities available to purchase homes at a discount in those areas with high inventory levels. Remember, the larger the inventory, the more flexible some sellers will have to be if they want to compete. Instead of trying to time the exact "bottom" of the market, concentrate on getting the most house you can get at a discount while rates are still low. Do your homework. Team up with an experienced real estate agent and find those neighborhoods that fit NAR's timeline of recovery, or what Bill Dallas refers to in the video as a "U-shaped" increase. Combined with low interest rates, entire neighborhoods you couldn't quite afford to live in during 2005 could now be well within your reach in 2008.
For the best deals, however, look beyond simply lower prices. Look for short sales, bank repossessions, and homes where the seller needs to move now due to personal or family issues. Other areas that may present buying opportunities are the areas that have and will and continue to experience employment issues. Look for areas with the strongest gains to suffer the greatest losses: the coastal states, Nevada, and Arizona. Areas with the greatest condo growth, like Miami, can also offer great buying opportunities, thanks to flippers who took on way more than they could handle.
Get Loan Ready in 2008
This means that now is the time to look closely at your credit score. If you're trying to time your long-term entry (2 years or more) into the real estate market, the last thing you need is to find out you have credit issues that could seriously delay your plans. Contact your mortgage professional right away and make yourself as "loan ready" as possible (see November's Mortgage article). It's important to note that credit remediation services, while extremely valuable, can take anywhere from three months to a year or more to provide the kind of results you might need in order to benefit in today's tighter credit market.
Getting credit won't be as easy as it was in 2005, that's for sure. But there is still plenty of mortgage money out there if you can put together a solid credit profile with the proper documentation. (Be prepared to provide much more documentation than you have in the past.) Don't let wild stories from the media keep you sidelined when you need to be in the game. Get yourself pre-approved (not pre-qualified) by an experienced mortgage professional and be ready to move when the time is right for you.
Finally, for homeowners looking to refinance, start looking into options in the next 30 days. If the credit crunch does continue and more mortgage companies are forced to deal with increasing defaults and rising foreclosures, lending standards could tighten even further. Last month, we told you about Loan-Level Price Adjustments (LLPA) coming in March. For mortgage consumers with credit scores below 680, this means much steeper rates automatically will apply to your mortgage.
Bottom line: 2008 will offer low interest rates, plenty of inventory at a discount, tighter credit standards, and (while lower at first) more stabilized home prices. Buyers: this is an awesome market for long-term investments. Sellers: be realistic about prices and creative about marketing. Refinancers: find out where you stand in the next 30 days.
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