Market Outlook, November 2009

The market has been very interesting to say the least. There is a big disconnect between the low and high-end markets… in fact, they’re almost behaving oppositely.

On the lower-end of the pricing spectrum, we simply can’t get enough inventory. The banks and government are working together to artificially limit supply, and this is driving up prices and volume. On the high-end, there is very little demand for the loans that underpin the transactions, so very few sales are being made.

I expect downward pressure on prices in both market segments… but an especially significant correction on the high-end as the 5-yr interest-only loans start to re-set. Yes, I mean more of a correction… like another 30%. This may actually benefit lower-end homeowners, as higher-end folks who are displaced still need a place to live. (Btw, I went on record predicting this 11 months ago.)

Meantime the low-end market will suffer from overall economic problems too (i.e. unemployment) especially when the high-end corrects. But here’s the thing… the low-end values have already dropped by half in some areas. Even if they drop another 15%, which would be huge, the rates are almost unanimously predicted to climb within the next 3-12 months. If prices drops by $50k, while rates increase by 2%, then your monthly payment will actually increase.

Right now rates are absurdly low (on amounts below $417k anyway)… around 4.625% with 1 point. The historic average is around 8%. It’s only a matter of time before they spike. Most US citizens also benefit from an $8k tax credit if they close before July 2010, so this is a factor as well.

Bottom line: for low-end buyers with solid job outlook who can hold the property for 10+ years… I believe now is simply a great time to buy a home… if you can find one. 20% down payment is very helpful in this regard. For high-end buyers, time is on your side to wait, especially if you are putting down a lot of cash (which everyone is by necessity on the loan front). Unless you can afford to buy a high-end home just for the lifestyle, then stay out of the kitchen until things cool down from an investment perspective.

And that’s the SethReport 🙂

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This entry was posted in advice, cardiff real estate, market outlook, observations and opinion. Bookmark the permalink.

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