Will the housing market and economy boom or bust in 2008?

Wow, 2008 is here. It’s hard to believe 9 months have passed since the market first showed signs of unraveling…and we’re still asking when it’s all going to end. These two looming questions from 2007 are sticking with us like a bad hangover: What’s going to happen with the housing/credit markets, and how will it affect the economy this year?

On the 2008 economic outlook…
Of course, everyone has an opinion about this (including us), but the general consensus seems to be that it’s not going to be a banner year for the US economy. Until the housing market is “un-slumped” and credit market “un-crunched,” our economy is going to be stumbling a bit. In the spirit of light-heartedness (which we may really need this year), we like the angle Businessweek writer Michael Watkins takes on his predictions for 2008 with his “Predictably Surprised Awards,” a tongue-in-cheek view on what everyone is talking about. For something more serious, check out the International Herald Tribune, “Economic Predictions for 2008 are all over the map.”

On how foreclosure increases in 2007 will impact the Bay Area economy in 2008…
Our very own AVP of Mortgage Origination, Steve Donahue, had this to say about what’s to come in 2008. (Steve’s got street “cred” in this area. He’s been in the mortgage business for more than 25 years!) “Foreclosures will have minimal impact on the overall Bay Area economy. That’s because most foreclosures are happening outside the Bay Area in areas like Stockton, Modesto, Merced, Vallejo-Fairfield, and Riverside-San Bernardino.”

On California as a speculative market…
“California is often mentioned along with states like Florida, Nevada, and Arizona as a speculative market that is ripe for a major adjustment. But, it’s important to keep in mind that California’s exposure is primarily in the San Diego and other Southland counties. The speculative market overall has cooled, as investors have no incentive to keep a home if it drops in value. It is viewed as simply as a bad investment and they walk away. As many of these homes were done with 100 percent financing, the investor does not take a major loss and has no desire to make a mortgage payment. These homes will continue to be a drag on the market overall until the excess inventory is reduced, but I predict investor-owned speculative properties will have minimal impact on Bay Area prices.”

On what the feds are doing to try and stabilize the credit markets…will it help?
 “The national loan modification and rate freeze will not stabilize the market in any significant way, as the real issue is the availability of money to create new loans. Right now, that’s at a minimum nationwide. If lenders’ mortgage loans are “non-performing” (meaning, in default or close to being in default) they tie up capital that would otherwise be used to fund new mortgages.”
 
On the overall market…should buyers make their move in 2008?
“It’s become a buyers market and sellers are anxious to negotiate. The New Year presents opportunities that have not been seen for years. Lenders that are not affected by the current mortgage slowdown will work with qualified borrowers to get them financed and complete their home purchase. If you’re thinking about purchasing a home, this is a good year to do it, because the market is predicted to begin moving again at the end of the year and into the next, but for now, buyers are in the driver’s seat.”

Thanks again to Steve Donahue for his insight and sage advice, and stay tuned for our next post!