Local Real Estate Market Outlook for 2010

Ok, no crystal balls, no magic hats, and no talking to spirit beings here. Just market observations and educated guesses for the Spartanburg county real estate market for 2010. It seems everyone is wondering where the real estate market will go in 2010. I’ve read rosy reports from main stream news to pessimistic sell everything now and leave the county perspectives. While nobody knows for sure the direction, we can at least be clear about what forces are most influencing our local market and predict trends for the short term.

Driver #1, the Tax Credit
During much of 2009 home showings lagged 2008 for the first 3 quarters of the year. Then, boosted by the First Time Home Buyer Tax Credit home showings spiked beyond 2008 making the total year showings measure about equal to each other. The original deadline for the tax credit was in November ’09 and then congress extended the credit until late April 2010. Make no mistake this is having a big impact on home sales. Additionally, congress extended the 10% tax credit to include home owners who lived in their home for 5 consecutive years over the last 8 years. I’ve talked to many buyers in this category as well.

Driver #2, Interest Rates

There has been much debate among experts as to the direction of interest rates.  While almost all agree they will go up in the long term the uncertainty lies in WHEN they will go up.  This “expert” predicts interest rates to go up in June 2010.  If we assume this is the case then the monthly cost to borrow money to buy a home will go up.  For example, a $150,000 home at 5.0% interest for 30 years in $805 a month.  The same home at 7% will cost $997.95 per month, a difference of almost $200/month.  (does not include tax 7 insurance) This will result in a few things: 1) force many buyers to purchase lower priced homes, 2) Put price pressure on home sellers because their home now seems more expensive to buyers.  In terms of the discussion here, higher interest rates are almost never good.  Let’s not even get into the Federal deficit as there are many blogs more knowledgeable about that then I am.

Driver #3, Government Policy Change

Most “experts” expect the commercial real estate downward trend to continue with many even terming it a collapse.  While the weak economy is a weight on commercial real estate possibly a bigger impact is being exerted from the lack of financing for investors.  With banks reluctant to lend, the number of buyers in the market place reduces drastically allowing supply and demand to do it’s thing and force seller prices down down down.  The same threat exists with residential real estate.  Fannie Mae and Freddie  Mac basically insure loans that individuals get to buy homes.  If a loan goes into default the government agency will guarantee the lender gets back about 80% of the loan value.  This exits to encourage lenders to make loans they might otherwise refuse to give because the perceived risk is too great.

The problem is that Freddie Mac and Fannie Mae are both broke.  They have no more money to insure loans or buy them in the secondary market.  That means less and less loans for buyers.  That means less and less qualified buyers in the market place.  That means a downward pressure on home sellers since there are not enough home buyers.

The above is an explanation of how economics works.  However government interference into the market can trump natural market forces, at least in the short run.  It was just announced yesterday 1/4/10 that both Freddie Mac and Fannie Mae would get UNLIMITED funding from the US government!  This is huge news!!  This will keep loans available for home buyers which in turn keeps demand for housing high allowing sellers to sell their home at prices they will generally be happy with.  This news is so significant I’ve posted the article here:

Washington Report: Treasury Policy Change
by Kenneth R. Harney
The Obama administration announced a blockbuster policy change over the holidays that didn’t get a lot of press attention, but will affect the housing market for years.
The Treasury department said it is now committed to support Fannie Mae and Freddie Mac with as many billions of dollars as is necessary to get them through the next three years. They’ll be no limit whatsoever anymore.
Previously the Treasury had limited its support to $200 billion apiece for the two formerly-private, now government-controlled, mortgage finance giants.
From here on, the Treasury said in its policy announcement, there will no “uncertainty about the (government’s) commitment to support the firms as they continue to play a vital role in the housing market during the current crisis.”
Though some critics howled that the Obama administration is writing a blank check, the significance of the move for real estate is potentially huge, for several reasons.
Number one: Fannie and Freddie provide funding for well over half the U.S. mortgage market — making home sales and purchases possible for hundreds of thousands of consumers.
Number two: The fact that the two companies have an explicit, full faith and credit backstop from the U.S. Treasury means that Fannie and Freddie can borrow in the capital markets at more favorable rates. Those lower costs of capital can then be passed along – at least in part – to home loan borrowers in the form of lower interest rates.
Finally, a key reason for the policy change – which also included permission for the firms to retain larger mortgage-asset portfolios – is to help Fannie and Freddie provide deeper loan modification assistance to greater numbers of seriously troubled borrowers.
Both companies are now expected to reach out and offer loan principal forgiveness to delinquent and underwater home owners – something that the current Obama loan modification program does not permit.
Partly as a result, Obama’s “Home Affordable Modification Program,” or “HAMP,” has been only minimally successful in attracting the participation of borrowers in the deepest trouble – especially those so far behind and underwater that they are walking away from their houses, sending back the keys to their lenders – and ultimately losses to Fannie and Freddie.
If the revised policy helps keep larger numbers of home owners out of foreclosure and out of walkaway mode, the impact on local real estate markets and home values could be significant over the coming couple of years.
Published: January 4, 2010

There are more market drivers of course but these are 3 of the biggest forces right now.

So what does all this mean for the real estate market in Spartanburg county?

Expect the first half of 2010 to be a relatively robust and strong market.  If you are thinking about selling your home consider putting it on the market now.  If you would like a free home price analysis read here.  If you are considering buying a house consider buying while the tax credit is still in place.  Heck, when is the last time somebody paid 10% of your house off?  Believe me there are a lot of us who wish we had that same deal when we bought our home.

The second half of 2010 is harder to predict.  Now that we know Freddie and Fannie are here to stay with deep pockets that alone should drive the second half of 2010 to be at the very best a slightly below average market but more likely to be a fair to weak market.

What about 2011 you ask? One has to wonder how long the government can keep printing money and keep putting off fixing the real problems our economy and money supply are facing.  I’ll wait until at least October before tackling 2011!