Foreclosure Resolution Blog

While predictions for the bottom in the housing market abound, I believe we haven’t even reached the halfway point yet.

Here’s the main reason why: it’s pretty well accepted that in any local real estate market, home sales are driven by the “bread and butter” segment. This is the land of first-time home buyers, and the price point generally hovers around the median sales price. If you look at the stats in the bread and butter market, you can get a pretty good sense of the health of the overall market.

The reason why this segment drives the rest of the market is because this group generates “move-up” sales, where they trade into a larger home, perhaps in a more desirable location. The focus on school district and things of that nature come into play. When a sale takes place in the bread and butter market, a significant percentage of those folks find a more expensive home in their area.

When sales activity declines in this segment, it doesn’t bode well for the rest of the market, particularly the homes in higher price ranges. When this group’s activity slows, then the more expensive homes have to look to inbound transferees for buyer activity.

This is great if you’re in a highly desirable area of the country, with a rising population. But, as we’ve seen, sales activity has declined in most areas of the country, and there have been articles pointing to the fact that labor has become “less mobile” as a result.

I don’t see the bread and butter market getting better any time soon.

In fact, I see it getting a lot worse.

Why? Off the top of my head…

1- First-time homebuyers have been trained to believe that they don’t need a down payment. Back in the middle-to-late 90’s, “zero down home loan” was a novelty. By 2004, was there any other option? Now that credit is tightening, borrowers are going to have to develop new habits.

2- The public has been told that there credit doesn’ t really matter that much. Despite all the advertising by Fair, Isaac and their ilk, most consumers have been able to get credit fairly easily, even with a substantial amount of “dings” on their credit report. The rules have changed, and you have to do more than fog a mirror now to get a loan.

3- Appraisers are facing more regulation and oversight. When housing prices were going up like clockwork, nobody gave a second thought to jacking up the appraisal so the seller could “gift” the money to the borrower. So, the downpayment assistance programs which helped drive the market are going to diminish.

4- Demand for housing is on the decline in many areas. If Congress passes their “rescue plan” with its tax credit for buyers of foreclosed properties, then some of the diminished demand will be shunted to empty homes, which have no move-up buyers.

5- Consumer debt is off the charts. Combine this with reduced debt ratios on home loans, and the average home buyer has less spending power.

There are plenty of other factors, but I think we’ve got plenty of room to the downside, and I haven’t seen any solid arguments for why things are going to get better soon.

Plus, I’ve been reading “Bad Money” by Kevin Phillips, so I suppose this has darkened my normally rose-colored glasses.

If you’re behind on payments and you’d like to stop foreclosure and keep the home, get yourself a few facts here and get in touch with me.

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This entry was posted on Friday, July 18th, 2008 at 2:36 pm and is filed under Avoid Foreclosure. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.