I will spend the next few weeks laying out what I see happening in 2009 and how that may compare to the past year to help you make sense of the mess this market seems to be in.
Last year was a pretty bad year for much of the country in home sales and values. Here in Seattle we actually didn't see prices fall as much as most of the country which was great because Seattle also didn't have the big gains in appreciation over the past five years that much of the country experienced. I attribute a pretty solid growth management act for keeping Seattle and Washington from having the big boom/bust that we have seen some other west coast states experience.
This week I am going to give you my thoughts on where prices will head in 2009 and then in future blogs I will hit on areas like interest rates, employment, loan products and the general market. I hope I can put this together in an easy to read layout and not get too much jargon mixed into the message.
Seattle saw home values drop 8.8% in 2008. That sounds terrible, but it was the first real drop we saw compared to many other states who have seen their prices fall the past two years with double digit rates. In fact Seattle had prices appreciate .5% in 2007 compared to Los Angeles' price decine in 2007 and 2008 of 13.7% and 24% respetively. I expect we will see prices come down another 4 to 7% in 2009 and then toward the 3rd or 4th quarter we will have seen the bottom and should swing into 2010 with some positive figures on the home sale/value front. I do expect to see appreciating (gains in home values) return in 2010.
With development almost nonexistent and builders having a difficult time securing loans we should see new construction in Washington/Seattle fall to very low levels. Building permits were down 52% in 2008. This is fine in the short term as there are more distressed home sales in the market now that would compete for buyers. However its not good for the longer term because our population is still projected to grow in Washington and those people are going to need to live somewhere...so someone needs to build them new homes. In economic terms you will see supply (new homes) stay flat and demand (new people buying homes) increase and that in a normal environment will lead to prices going up...but not yet.
Buyers are able to find some 'deals' right now due to home sellers who are either in default, foreclosure, or are worried about heading that direction with job losses that seem to continue to pile up. The employment market should continue to get a little worse before it gets better and that will keep a lid on some of the buying that would otherwise take place. However, with rates being low and the incentives being pushed by the new administration we should see an increase in the number of first time buyers improve this spring and that will free up some owners in the lower price tier to move up to the next tier of home prices.
I see rates playing the most active role in getting buyers to buy. A buyer today who is willing to have a principal and interest payment of $2000 could purchase a home with a loan of 378k at 4.875%. IF that same buyer waited and rates went up to 6% (where rates were last fall) the same $2000 payment would only buy them a loan of $333.5k. So the same payment would buy 88% of the loan amount. If prices fall another 12% that would be about a wash, but I really don't expect prices to fall as much as 12% in 2009.
The Federal Reserve is actively purchasing mortgage bonds to keep interest rates as low as possible because they understand the time value of money and know low interest rates will allow buyers to get a nice home (which is already being sold at a discount) and secure an attractive rate and payment structure going forward.
So my advice to buyers is...don't wait too long for the rock bottom deal because you may likely get a discount on the price and then get hit with a higher rate and it costs the same over time...which means you really didn't get the deal you think you did. Rates are great, there are some great tax benefits being offered to first time buyers, and buyers are finally in the drivers seat...so go buy a house!...oh and by the way...call me to help you with your financing.
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