Builders, realtors, even some financing companies have been saying the same thing for quite some time now… “This isn’t working!” “The changes didn’t make things better.” “The system is broken.” There are finally signs that our message is getting through…
Can Anyone Save Fannie Mae & Freddie Mac? by CNN Money
I’ve spent the past few days reviewing the 2012 housing market projections. Most of the sources are saying the same thing. 2012 will continue to be a bumpy road…
Good News for the market: mortgage interest rates continue to be at historic lows, and the foreclosures on the market are slowly working through the system.
Bad News for the market: unemployment remains above 8%, and it is unclear how many more foreclosed properties are in the wings waiting to go into the real estate market.
My opinion for the market: We are headed in the right direction. 2012 will see a gradual increase in sales activity. Maybe not in actual sales, but people are going to be preparing for the next step in purchasing/building a home. Several things lead me to believe this.
1. Many households have been supported by a single income now for two to three years. These families have adjusted their lifestyles to this income level. In fact, according to the Federal Reserve Board, the current Household Debt Service Ratio (an estimate of the ratio of debt payments to disposable personal income) is at is lowest since 1994. It has been slowly creeping down since the first quarter of 2009. As it continues to drop, families will start to make more purchases. As people spend money, the job market will increase to support the increase of inventory & service needs.
2. As the the job market increases, single income families will become double income families. Now there are “experts” out there saying that previous homeowners are now comfortable renting and will continue to do so. I do not believe this. I believe the American public finds pride in homeownership. Maybe this is my Maine roots rising to the surface: Home & Hearth, family dinners and all that… I believe people will be making every effort to become homeowners again. That said, as families get back to double income status, they will be taking the time to repair their credit, save the down payment, and research their options for homes. People are also going to need time to be sure the new jobs are long term and not temporary.
3. 2012 is an election year. Election years typically create a holding pattern for the general public. We all “wait and see” what is going to happen. Are you going to expand your business? “Well, I’m going to wait and see what happens.” Are you going to change investment plans? “No, I’ll wait and see what the market does.” Are you going to build on your land? “I want to but, I think we’ll wait and see how things go…”
On top of the above key points, one of the main hurdles for the market right now is the appraisal process. All of the “experts” are now seeing the evidence of this and several groups, including the NAHB, are working to fix the problems. Solutions should be on their way by mid 2012, allowing builders more opportunities toward the end of the year.
The bottom-line is: if you are in a financial position to do so, NOW is a great time to build. Interest rates are as low as they will most likely ever get. Any homes built in this market are going to build equity very quickly, as the market stabilizes and grows. A land/home value in today’s market of $175,000 is likely to appreciate to $225-$250,000 within the next decade. This appreciation is due to the mortgage market stabilizing, foreclosed properties being sold out of the market and the value of homes on the market increasing. Families in the position to build now can cash in on that equity, as well as the savings of incredible mortgage interest rates.