MacroScope

Housing “W”hipsaw looms

October 9, 2009
After months of cheerier data, the housing market is set for another tumble, according to John Burns Real Estate Consulting in Irvine, California. The consultants, who provide advice for builders, developers and banks, are calling for a “W”-shaped recovery, marked first by the plunge that Americans living off of home equity would rather forget.

America has breathed a sigh of relief since April, as the summer selling season kicked in and the $8,000 first-time homebuyer credit nudged consumers off the fence into the most affordable market in years. These factors, along with easy financing from the Federal Housing Administration, was the first leg up for the “W,” said Lisa Marquis Jackson, a vice president at John Burns.

The onset of the weaker selling months, a building pipeline of foreclosures and expiration of the tax-credit on Nov. 30 will likely bring rising prices upturn to a halt, creating a “false peak” and fresh downturn, the group says. Federal efforts have slowed foreclosures but have not addressed many issues including unemployment and underwater mortgages, leaving a heavy “shadow inventory” set to knock prices to fresh lows.

An extension to the first-time homebuyer credit — bandied about by the Obama administration — may soften, but not prevent another leg down, the John Burns group said.

“We anticipate that foreclosure activity will remain very high at least through 2012, with the majority of future foreclosures coming as a result of job losses,” John Burns, president of the group, said in an outlook.

The second downward thrust to the “W” could also come as the FHA clamps down on credit, they said. Signs of stability in the economy will push mortgage rates higher, meantime.

Once a new, lower bottom in prices is realized in mid-2010, America can see a gradual appreciation thereafter because of weak employment, sluggish economic recovery and continued stress on the banking system, the group predicted.

Comments
4 comments so far | RSS Comments RSS

Interesting article. I have read more and more about changes FHA is considering including tightening of credit and raising the down payment percentage, does anyone have any details of what is being considered in Washington? I believe the current qualification credit wise is 620 and down payment 3.5%, are they proposing raising them to say 650-675 or higher and the down payment to 5%?

Posted by RJ | Report as abusive
 

The best description I’ve come across among the alphabet of descriptions out there isn’t a letter… it’s “Ski Jump”!

Posted by Peter H | Report as abusive
 

I do think the real estate market is in for a real bad ride. There are a lot of over built properties out there and still high unemployment. You can’t get blood out of a turnip so the saying goes. I was in Alaska in 1989 when the market crashed and there were people everywhere giving back residential and commercial properties. We have not even seen the commercial crash yet. I believe that it will eventually adjust, if and when the Government gets serious about a new kind of stimulus including policy changes. We can have the cleanest air, the cleanest water, and be protecting every species of animal that ever lived, but we will still be flat broke and open for takeover.

Posted by fbelz | Report as abusive
 

There is proposed legislation to raise the downpayment for FHA mortgages but apparently it doesn’t have legs

Posted by Al Yoon | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/