When will the real estate closing bell sound?
At the very least, a bad day on Wall Street has a definitive end; the sound of the closing bell. After a full day watching the stock market drop, we take comfort in knowing tomorrow it may rally back. When can we expect someone to ring this closing bell on the real estate market? How much worse will it get?
The past year has been the most painful in decades for residential real estate, as foreclosures increase, and defaults continue to rise on less-creditworthy borrowers creating a broader credit squeeze. House prices fell, home ownership dropped, foreclosures soared, and the housing market emerged as the entire basis of our economy.
Unfortunately, relief from these housing woes is unlikely anytime soon. Daniel Mudd, chief executive of government-sponsored mortgage investor Fannie Mae, expects prices to continue on this decline as foreclosures rise in 2008, possibly well into 2009. RealtyTrac®, the leading online marketplace for foreclosure data, released its October 2007 U.S. Foreclosure Market Report, which shows a total of 224,451 foreclosure filings nationwide. House prices tumbled in 2007; 6.5% as of October, while an additional 3,711 New Jersey foreclosures have been filed this month alone.
As bargain seekers line up to purchase their new home or investment property, finding a lender to approve their loan has become a real challenge. Metaphorically speaking, ringing the closing bell for real estate professionals has a whole different meaning. Buyers not willing to commit, or last minute mortgage guideline changes, makes every closing a challenge. It’s become a nail bitter until the final closing day for all parties involved in the transaction.
Federal Housing Authority (FHA) backed loans may be the only light at the end of this dark tunnel. FHA reform reached an important milestone recently when the U.S. Senate overwhelmingly approved its version of the legislation, the bill passed by a vote of 93-1.
The new FHA reform will raise the limit on FHA loans to at least $417,000. Some areas of the country will see an increase go as high as $829,750. This FHA increase will help people countrywide who are facing foreclosure refinance under these new terms, and help many new home buyers obtain lower interest loans, with less money down (as low as 1%). However, the biggest stumbling block to a compromise is a feature of the House bill which establishes a new housing trust fund for troubled borrowers and would require FHA to contribute to it.
Experts predict a bottom to the housing market sometime in 2009, but only if the economy stays relatively strong. If it slides into broad-based recession, it won't be until the end of the decade that the housing market finds a bottom.
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