Why 2008 Will Be A Pivotal Time For Real Estate

It seems that 2008 is going to be a pivotal year for Real Estate. Whatever happens this year is going to determine what happens for the next year and probably up until the start of the next decade. Lets look at all the things that happened last year, and what we have to look forward to this year.

In 2007, we saw the market go from a steady pace to almost a panic. The first six months seemed to be going along just fine. Homes were starting to sit on the market a bit longer, interest rates started rising slowly, prices seemed to be leveling off or increasing at a normal rate, (etc., etc.) you know, things you see in a normal market.

Then, probably about the middle to end of July, the market suddenly started going down faster than a roller coaster with a jet engine. There were way more sellers than buyers, home prices started to fall faster and faster, lenders started to fall one by one, loan programs were drying up, short sales and foreclosures were rising and buyers were becoming scarce to almost non-existent.

Enter the Government. President Bush wanted to find a way to assist people who got into adjustable rate loans and came up with a program to freeze interest rates for five years. While I admit that the plan was well conceived (in general), the execution was poor at best. Out of the 3 million or so homeowners who are facing foreclosure, this program will only help about 15% to 20% (450,000 to 600,000) of homeowners, since this program has way too many restrictions.

Here is why 2008 is going to be a very pivotal moment for real estate:

First, 2008 is an election year, and election years are typically good for the Real Estate market. Candidates want to get every vote they can, and since we are in a down market and a good portion of the country own their own homes, they are going to do everything they can to help out the Real Estate market. Look for them to start introducing or backing bills (like H.R. 1852, which is next) to assist homeowners, and pushing them through fast.

Second, is House Bill H.R. 1852. H.R. 1852 is the Expanding American Homeownership Act of 2007, which is trying to revitalize FHA and bring it back stronger than ever. It aims to increase the maximum loan limits (125% of the median home price for your area), reduce qualifications for both the borrower and the property and allow homeowners, even those who are upside down in their loans, to re-finance through FHA. Currently it is sitting in a Senate Sub-Committee "Committee on Banking, Housing, and Urban Affairs, waiting for approval, which is why it is in the 2008 section.

Third, the feds are concerned about a recession, so they are dropping the interest rates to increase the amount of money available to lend. This doesn't have a direct affect on mortgage rates, but seeing as we are still in the high 5% to low 6% rates, I don't expect them to go anywhere this year.

Fourth, lending restrictions for the most part are helping the situation. No longer can you have a pulse and weak credit score and get a loan, especially for 100% financing. Now you need at the least, a decent credit score, documentable income and assets, decent debt-to-income ratios and sometimes a down payment. True that this may eliminate a few buyers, but when buyers do come out, they will be ready and able, not time wasters.

Fifth, if you short sale your home or it is foreclosed upon, you will not have to pay taxes on the difference thanks to President Bush, who signed this bill into law on December 17, 2007 (almost 2008). It will even backdate a lot of the sales that already took place, therefore helping people who have already lost their home.

Sixth, FHA is going to be the new Real Estate Market Superhero by allowing homeowners to re-finance their adjustable rate mortgages into 30, 35 or 40 year fixed rate loans. They are even talking about allowing homeowners who are upside down to re-finance, as long as they have made their payments on-time for 2 years. Imagine how many homes will be saved from foreclosure!

Seventh, buyers who have been sitting on the fence for the last 6 months (or more), are going to start buying their homes this year. For the most part, they know the worst is over and now is the time to buy. Sellers are offering major incentives to get their home sold and prices in some areas are stabilizing, and they are going to want to take advantage before the market flips again (or the incentives go away).

Thoughts? Comments?