The Wall Street Journal published an article this week titled ‘The Housing Crisis Is Over’. Written by Cyril Moulle-Berteaux, managing partner of the NY hedge fund firm Traxis Partners LP, he stated that "it is very likely that April 2008 will mark the bottom of the U.S. housing market". He went on to point out that the housing slump has actually been going on since 2005, brought on by a decline in housing affordability. Reaching the bottom doesn’t mean a quick turnaround, it just means that "the trend is no longer getting worse, which is the critical factor."
When prices got so high that people who actually live in the homes (rather than investors and speculators) could no longer afford them, they stopped buying…and the bubble burst. In March I talked about The Silver Lining of our current market being an increase in affordability. He echoed that, stating that "numerous households that had been priced out of the market can now afford to get in", and that will stop the decline.
Those who argue that housing prices need to fall another 20%-30% to bring them in line with historic levels frequently base their assumptions solely on inflation, failing to take into account that affordability is mostly determined by the ability to make monthly payments. Interest rates hit 18.5% in 1981…very different from the mortgage interest rates we are seeing today below 6%. For a $200,000 loan, the monthly payment for a 30-year mortgage at 18.5% is $3,096…at 6.0% it is $1,199…that’s a difference of $1,897, a big impact on anyone’s budget!
There is no doubt that we are experiencing a serious economic situation that is still unfolding and will likely continue to be with us for some time. "Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now."
Click here to read the full story. While not everyone will agree with his assessment, it is at least a good sign that there is talk about hitting bottom…a logical progression from a March article asking "Is the end in sight?"
Market statistics compiled by the Minneapolis Area Association of Realtors (MAAR) for the Twin Cities region were just updated through April…click here for links to all 125 communities. The number of sales and average sale prices for the region have been inching up for three months in a row…not a significant rise, but also not a decline. (Click on the charts to enlarge.)
Average days on the market has gone down and percent of sale price compared to list price has gone up compared to last month. New listings, although increasing the last few months, are lower than at the same time last year. These are all good signs that the market may be stabilizing, although coming out of the winter months also plays a role in our northern market.
In my Short sale musings post in March I pondered the impact of the number of short sale and foreclosure transactions on the market…how they could be slowing down the number of pending sales. In fact, I have clients still waiting to hear responses to short sale offers made in February and March. If their offers aren’t accepted (multiple offers on a property means only one can be accepted), they will have to start the process of searching for a home all over again…all extending the buying and selling process by many months.
A special research report compiled by MAAR on foreclosures and short sales in the Twin Cities housing market was also just released this week…click here for the full report. Their increasing market share over the past three years is very dramatic, with bank-mediated properties commanding 27.6% of closed sales in the first quarter of this year. (Click on the charts to enlarge.)
The other very interesting fact is that while the median sales price of bank-mediated properties has dropped by 15.9% over the past two years, the median sales price of traditional properties declined by only 3.5% for the same period. This means that the widely reported drop in median sale prices has been skewed by bank-mediated properties. While values have declined for all properties, traditional properties are not experiencing the same high levels of decline in value as foreclosure and short sale properties. (FULL REPORT)
My apologies to those of you who may have expected today’s post to be on ‘Preparing to Sell’, as I promised in Monday’s post…this new market information just seemed too timely to put off until next Monday, when I will talk about ‘Preparing to Sell’.
