RealityCheck: Why 2009 May Be Just What the Real Estate Doctor Ordered

“Change has come to America.” Those were the eloquent words of Presidentelect Barack Obama during his November 4, 2008 presidential acceptance speech in Chicago. Following a three year declining real estate market, change couldn’t come sooner for most Americans, especially when it comes to the real estate sector. Our economy has been mired in one of the deepest and longest downturns the nation has seen in decades and as part of that downturn, real estate prices and sales have suffered. But many experts agree that despite all of the bad news of late, the U.S. economy is expected to emerge from the recession sometime around mid-2009 and that prognosis may be just what the real estate doctor ordered.

So What is the 2009 Real Estate Prognosis?
Much of the 2009 real estate prognosis is dependent on the state of the financial system in general and the real estate finance situation, in particular. The fact is, we really can’t find traction until the financial markets find stability and equilibrium. Also important to consider is the flow of distressed sales throughout the market and whether or not those sales will increase or decrease in the coming year. Knowing this, many experts are predicting that once the massive amount of fiscal stimulus currently being created by lawmakers and aggressive action by the Federal Reserve kick in, the economy is expected to improve. More specifically, let’s take a look at what the experts are saying about real estate in ‘09:
• According to the California Association of Realtors’ October 15, 2008 CAR’s California Housing Market Forecast for 2009, “Home prices throughout most areas of California will post declines next year while sales of existing homes will continue the rise in 2009.”

• CAR also notes, “The median home price in California will decline 6 percent to $358,000 in 2009 compared with a projected median of $381,000 this year, according to the forecast. Sales in 2009 are projected to increase 12.5 percent to 445,000 units, compared with 395,600 units (projected) in 2008.”

• CAR also notes, “We expect sales of distressed properties to peak in early 2009—a critical factor in the housing market that directly impacts the timeframe for stabilization in the median price.”

• According to USA Today’s December 23, 2008 article Forecasters share prediction for economy’s outlook in 2009, “The long-depressed housing market is widely expected to hit a bottom in 2009. But the rebound will likely be slow and gradual, given rising unemployment and
a sluggish economy.”

• According to the National Association of Realtors, “The U.S. economy has entered a recession and will contract for the next three quarters. The recovery,beginning in the second half of 2009, will be tepid. The unemployment rate will peak at 6.7 percent by mid next year before steadily holding down. Despite these challenging economic times, existing home sales will be rising.”

• According to USA Today’s December 23, 2008 article Forecasters share predictions for economy’s outlook in 2009, “We all just need to hang on,” says Allen Sinai, president of Decision Economics, an economic consulting firm. “By late in the year, the economy will be moving up, and 2010 should be a recovery year.”

The Four Step Prescription for Recovery
Possibly the most important ingredient in the 2009 real estate correction is the fact that real estate makes up 20% of the Gross Domestic Product in this country and regardless of which side of the political fence you fall on, our country cannot be fixed without first fixing the housing sector. Real estate should be gaining a great deal of attention over the next several months, particularly by our new administration. With this important information in tow, it is important to point out that we currently have several key indicators that may position our country for a real estate recovery in 2009:
1. Dropping Interest Rates—According to NAR’s December 17, 2008 article entitled Fed Action Creates Best Interest Rates in 50 Years, Realtors® Report, “Mortgage rates which had averaged 6.3 percent in the third quarter, have recently fallen into the 4 percent range in some parts of the country.” The article went on to report, “NAR has estimated that a one percentage point decrease in mortgage rates will increase home sales by more than 500,000 homes.”

2. Improving Affordability—The California Association of Realtors recently released its First Time Home Buyer Housing Affordability Index which showed that the percentage of households that could afford to buy an entry level home in California stood at 53 percent in the third quarter of 2008, compared with 24 percent for the same period a year ago. This increased affordability has brought on a surge in sales in recent months with DataQuick News most recently reporting ( on December 18, 2008 ) that a total of 5,754 new and resale houses and condos closed escrow in the Bay Area in November. That was up 12.3 percent from 5,127 sales in November 2007.

3. Government Intervention—As we noted before, with real estate making up 20% of the Gross Domestic Production in this country, it is imperative that the government take action to correct the housing sector. We need to move through the current financial crisis and restore the flow of credit so that qualified buyers are able to take advantage of improved affordability and successfully purchase homes. To respond to this, the government is currently looking at a number of corrector options including tax benefits, home ownership credits, subsidies or interest rate stabilization, to name a few. President-elect Obama and his economic team are in the process of developing an economic recovery plan designed to help Main Street and Wall Street with an ultimate goal of creating at least 2.5 million jobs while rebuilding our infrastructure, improving our schools, reducing our dependence on oil and saving billions of dollars. According to’s December 23, 2008 article Obama Closing in on Stimulus Plan, Vice- President-elect Joe Biden was quoted saying, “While our short-term goal is to start creating jobs as quickly as possible, we plan to invest in areas…that will produce long-term benefits for the long-term health of our economy.”

4. Slowing of Distressed Properties—The timing of our price recovery may depend on how quickly the government takes steps to mitigate foreclosures. According to CAR, “We expect sales of distressed properties to peak in early 2009—a critical factor in the housing market that directly impacts the timeframe for stabilization in the median price.” NAR also reported in its December 17, 2008 article entitled Fed Action Creates Best Interest Rates in 50 Years, Realtors® Report, “To boost the economy, it is critical to stem the rising tide of foreclosures and boost home buyer confidence in the housing market,” McMillan said. “Lower interest rates coupled with increased foreclosure mitigation are the key ingredients to stabilizing the housing market and preserving communities and homeownership.”

Looking forward to 2009, many experts agree that the financial system will begin to show signs of stabilization in early 2009 and we may begin to see a real estate turnaround by the summer.

If you are considering buying, this should serve as a good indicator that now may very well be the time to purchase real estate. If you are considering selling, possibly more so than ever, you need a qualified Realtor® who can assist you in selling your home. It is usually not enough to simply post your home on the MLS and post a For Sale sign in the yard. You need someone like myself who understands the intricacies, inventory and challenges of your local market and someone who knows how to properly position your home so it stands out among the sea of listings currently available.

If you are considering buying or selling your home in 2009, I have the resources, knowledge and experience to properly represent you in today’s market. Contact me today for the representation you deserve.

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