Viewpoint: What the Bulls and Bears are Saying about Effects of the Real Estate Downturn – Nationally and Here in Denver

What Are YOUR Opportunities in Today’s Housing Market?

by Marie de Espinosa, Real Estate Broker

Nouriel Roubini, Professor of Economics at NYU, claimed the current downturn is “the worst housing recession since the days of the Great Depression” at a Real Estate conference in New York City on January 9th. Citing a “systemic financial crisis”, Roubini believes the US economy and housing markets will take “years to adjust.”

While no one can deny that selling mortgage risk as securities of undetermined value has shaken the credit markets, with effects seen on Main Street and Wall Street, some believe that the impact will be localized: market reaction to banking fallout and regulatory changes for lending practices and securitization of mortgage debt.

Meanwhile, NAR Chief Economist Lawrence Yun is looking forward to a recovery. Announcing a National drop in pending home sales, Yun stated that “A meaningful recovery in existing-home sales could occur as early as this Spring, or it may be further delayed toward late 2008.”

Whether you consider yourself a Bull or a Bear, stability in sectors of the economy outside of the housing market and banking indicate that wide-spread recession is not immediately upon us. Reductions in interest rates by the Federal Reserve Bank, the stimulus package passed by Congress, and reports of increases in oil reserves are encouraging signs for many sectors of the economy. In light of this, the question of whether the housing downturn will bring down the wider economy becomes “How the significant is the local downturn and how will it affect you personally?”

I’m finding that Buyers I work with directly are writing lower offers, but that they are rarely accepted without compromise. That is to say, there is no fire sale is taking place in the Denver Housing Market. What I do see is that the liberal lending practices which allowed many to become homeowners has slowed dramatically, thereby reducing demand. This decrease in demand is seen across the board but most especially at the median price point and below. Sellers may be uncomfortable about the price cuts they are forced to accept in order to sell – but as I said, their Buyers are not calling all the shots.

Denver’s Seller disappointment is not the desperation seen elsewhere. Denver’s Real Estate market did not experience the “bubble” seen in other markets. Jeff Thredgold, an Economist with Vectra Bank Colorado points out that “In California, Arizona, Nevada and Florida, the average price of a home increased 84 percent during the past four years. Nationally, the average price rose 47 percent, and in Colorado, the average price increased between 15 and 18 percent.”

This means local Sellers more often must reduce the appreciation they expect to realize rather than slash their bottom line. Sellers are not bringing money to closing in order to sell their homes unless they purchased in the last couple years, with little down; or have over-improved a recent purchase with the expectation of terrific profit. We can all rest assured that over time the historical trend of property appreciation will continue.

Last, the foreclosure trend here in the Denver Metro area is impacting our Rental Market. Turned out of their homes and faced with tighter lending standards, many families are looking for a home to settle in and rent while they repair their credit. Look for ways to take advantage of the lower prices in the local market, gain passive income as landlords, and sell in a few years when a wave of wiser, credit-worthy renters look to become homeowners once again.

Is Housing Market Pessimism Overdone?

From the Wall Street Journal Online

Just how bad off is the housing market? That’s the controversy brewing in Washington. Some economists, Democrats, bankers and consumer advocates are pushing for a rescue program for struggling homeowners as foreclosures mount. Meanwhile, as the Journal reports today, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson seem to believe that concerns about the housing market are overblown.

The housing market should be able to self-correct itself, Mr. Bernanke says in the article, with falling prices spurring buyers to jump in. He predicts that housing may bottom out sometime next year. Mr. Paulson adds this: “I don’t think I’ve seen any scenario where the American taxpayer needs to be stepping in with more taxpayer dollars.”

In his remarks today at a news conference at the White House, President Bush seemed to agree. Taking aim at Congressional proposals to help struggling homeowners, he said that a Senate bill would provide a needless bailout for speculators and lenders.

Meanwhile, Senate Majority Leader Harry Reid of Nevada is saying that government intervention is required to stabilize the housing market. “In my view, the enormity of the foreclosure crisis requires a much more aggressive approach,” he says in the Journal.