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Real estate bottom: Are we there or is a major drop on the way?

Today's Financial News - Posted October 7, 2008

Consumers are scared to enter the real estate market. Are they making a big mistake? Is it possible for prices to go even lower? You may be surprised.

By Andrew Snyder

Baltimore – (TFN): I had an interesting call from my father-in-law last night. It was a bit different than the normal conversation topics we cover like weather, fishing, sports, etc. — you know, the kind of subjects that create a dialogue without really digging too deep.

Last night was different. We talked about money, the markets, and especially real estate. You see, my father-in-law lives in and owns a few businesses in Juneau, Alaska. The current financial fiasco is a huge concern for him.

For over a year now, he has been looking for a suitable real estate buying opportunity. It sounds as though he has put his search on hold.

“The prices are still really high up here,” he said. “Like the rest of the country, I am not going to buy anything until this whole mess is sorted out. I think prices will really begin to drop soon.”

His thoughts sound like those of so many other Americans. Should America put its money on the sidelines?

Although we have heard stories of horrific markets from across the country, the really negative action is coming from just a few localities. Places like southern California, Las Vegas, Miami, and Manhattan have gotten slammed. But the true heart of the nation, places like North Dakota, Kentucky, Delaware, Colorado, Georgia and every other moderate population center, has not seen a huge plunge in its real estate market.

A firm price floor

There is no doubt some home prices are about to drop. But will they ever see the 20% or 40% drops making headlines? I doubt it.

In the average American market, a drop of ten percent or more would be an extreme case. Most likely, thanks to mortgage rates hovering just below 6% and thoughts of the Federal Reserve dropping benchmarks even lower, potential buyers will begin to trickle in on any news of price reductions.

To prove that I think we are quite close to the bottom, I put my own money on the line and purchased a house. The asking price on this particular property has dropped by over fifteen percent since it was originally listed over nine months ago.

Like so many other properties on the market, its selling price could not go any lower or the current homeowner would be upside-down on his mortgage. In other words, he would still owe money on it after he sold it.

There are a lot of properties on the market in a similar situation, especially recently built homes. These “over-mortgaged” homes are helping the market keep from making a dramatic and sudden plunge.

Thanks to this phenomenon, the markets may slow to a crawl, but prices will not plunge.

The real estate market is making a lot of headlines and buyers are sitting on the sidelines. The wait may payoff for a few, but for most of America the bottom is so close the risk of missing out on a cheap dream house may not be worth the possible reward of saving a few bucks on your monthly mortgage payment.

Make a realtor happy and start looking for buying opportunities today.


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Posted by Andrew Snyder · Filed Under Real Estate 

Comments

4 Responses to “Real estate bottom: Are we there or is a major drop on the way?”

  • Joey J. Jones Says:
    November 4th, 2008 at 12:11 pm

    Yeah right.

  • Peter Griffin Says:
    October 8th, 2008 at 5:21 pm

    One mistake - manhattan real estate hasn't been “slammed”. In fact, it is UP in 2008 vs. 2007 - it may be the only place that hasn't seen any decrease at all. That is likely to change next year, but manhattan condos cost more in Oct 2008 than they did in 2007

  • Rich Says:
    October 8th, 2008 at 12:42 pm

    You base your theory on the idea that because homes are “over-mortgaged” sellers will not venture below that point. Sellers have been forced to do that for the last 18 months, where have you been? The other problem with that is that our governments $700 billion bailout bill will refinance those mortgages to 95% of their CURRENT appraised value, negotiated by ACORN by the way.

    The only thing that will maintain the price of existing homes is the real cost of building a new one. Once the distressed inventory is gone, the price of homes will once again be determined by the combination of demand of the real property location and the cost of construction.

    That is of course if the money lenders are no longer forced to make loans to individuals that lack the means to pay it back. Not just homes but cars, credit cards, furniture and flat screen TV’s as well. If that doesn’t change then we will continue to be in a financial no win situation that all the bailout’s in the world won’t dig us out of.

    The tax payers take it in the shorts once again by our governments never ending quest to buy the votes of the growing mass of non-taxpayers.

  • Stephan Says:
    October 7th, 2008 at 10:37 am

    Yet another ridiculous, academically baseless article. The financial markets and housing markets are in for a serious plunge. There is no available credit and jobs are being cut at an alarming rate. Who exactly will be buying a house in the next few years?

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