1. Little or No Appreciation as Market Bottoms
In parts of the country hardest hit by 2007 – 2008 foreclosures such as California, Michigan and Florida, prices will continue to soften. In scattered markets, the bottom will already have been reached by April but media won’t report it until late summer, after a trend has been established.
There will be no more dramatic price drops such as those 30% to 50% declines we saw between 2006 and 2008. But the market will not stabilize in 2009. Furthermore, consumer confidence will continue to fall, and more people will find themselves out of work.
On the bright side, employed home buyers with good credit will find 2009 is an excellent time to buy.
2. Housing Inventory Will Fall
Sellers will withhold listings from the market or cancel listings that don’t sell within 90 days. Although persistent demand will come from first-time home buyers and investors, inventory will fall. Falling inventory will not drive up the prices.
The number of homes for sale in states such as California will decrease by 45% or more from the same months in 2007. New home starts will fall by the wayside, and the construction industry will see at least another 10% in layoffs.
Although fewer homes will be available for sale, those sellers will be motivated to sell.
3. Bank Will Rent Out REOs
In an effort to drive up housing prices, banks will slowly release their REO inventory to the market and price those homes at 5% to 20% under comparable sales. Banks will be under great pressure to cut losses and increase revenue. Although state charters prohibit banks from renting out bank-owned homes, banks will find a way to work around this prohibition.
By transferring title from bank-owned homes into holding companies, banks may find a loophole that will allow them to rent out homes instead of putting them on the market. This maneuver will let banks receive income while waiting for the market to turnaround.
To rent the homes, banks will be forced to fix them up.
4. Buyers Will Compete in Multiple-Offer Situations
Due to limited inventory, coupled with pseudo pricing on short sales and foreclosures, more buyers will find themselves competing over the attractive listings. It will not be unusual for sellers to receive 20 or more offers on these listings.
Multiple offers may drive up the prices to market value but buyers will refuse to pay over market value. The stiff competition will cause frustration and confusion among buyers who will find themselves going head-to-head with investors. Cash buyers will win every time over buyers who need financing.
This means it will be more important than ever for home buyers to hire an excellent negotiator.
5. Rental Rates Will Increase as Demand Increases
Surging numbers of home owners will lose their homes in 2009, which will turn former home owners into tenants. Some home owners will walk away from their residences, deciding that home ownership is not worth the aggravation, and return to living in rentals.
Because new construction will be at a standstill, existing inventory will serve as shelter. There will be fewer rental homes available than the demand will dictate, which will put upward pressure on rental rates. Sellers who are unwilling to take a hit on their sales prices will put their homes on the market as rentals, but that won’t provide enough inventory to fulfill demand.
It’s a good time to be landlord.