How Long Will it Take to See Light at the End of the Tunnel

San Francisco, CA By Mike Colpitts

The question everyone has these days is, “How much more will housing prices fall?” The answer to that question lies in the answer to a bigger question all together: How long will it take world credit markets to become functional? Local housing markets economic strengths weigh heavily on local job conditions and other regional dynamics such as business growth and development.

Never before in U.S. history have we become so dependent on what the credit markets will do to our economy. Home equity levels have dropped to the lowest level recorded at 48% nationally. Prior to the U.S. Savings and Loan Fraud scandal in the late 1980’s, savings and loans made the majority of home mortgages. That all changed after the S&L crisis. More than three-quarters of all mortgages made in the last decade have been unregulated.

The foreclosure epidemic is forecast to worsen by Housing Predictor through 2011 as more adjustable rate mortgages reset, increasing mortgage payments. Many owners have been unable to refinance their properties at values high enough to obtain a new mortgage.

However, aided by lower mortgage rates and promises from the Fed that they’ll do everything they can to help the nation’s ailing economy, home sales seem to be improving in some areas of the country, a Housing Predictor survey shows.

Of the more than 250 markets tracked regularly, an improving trend of more home buyer activity appears to be developing in markets scattered across the country. The trigger is apparently lower home prices and lower interest rates fueled by a pent up demand for homes.

Pending sales are up by nearly a third in Seattle, Washington. Salt Lake City, Utah is also seeing a surge in buyer interest. A handful of markets in Florida are also experiencing increases in inquiries for properties, which is typical of more regular market conditions going into the spring.

The on-going survey of housing markets does not conclusively show there is strong sales activity in a large majority of markets. But it does show that pockets of areas scattered throughout the south-west, south-east and west are showing improvements. Realty companies also report increasing numbers of inquiries on property.

The over-whelming majority of real estate markets in the nation are suffering from real estate recessions as a result of the credit crunch. These days it’s harder to get a mortgage to buy a home. But government sponsored programs increasing the mortgage limits on home purchases have been increased to help ailing markets.

The trend does not yet signify a bottom to the real estate downturn, according to analysts, but does show that conditions for many housing markets are at least beginning to see light at the end of the tunnel.

Housing prices have deflated as much as 50% in many markets in California and Florida, where slightly more than a fifth of all home mortgages are made for the entire nation. The two sunshine states have been the hardest hit in sheer numbers of foreclosures in the U.S.

Foreclosures have repeatedly hit record numbers monthly over the last half of year. Investors and owner occupants have been purchasing homes at as much as 50% off the markets peak highs in California, Florida, Ohio, Indiana and Michigan. The best buyers markets are developing at a healthier pace for 2008.

The drive to the other side of the tunnel may be a long haul.