2009 Starts Where 2008 Left Off

With a new year comes the hope of some good news, especially when it comes to the Monmouth County housing market. Sadly, this year has picked up where last year left off.

I would like to report that the January sales figures showed improvement from a year ago, but sadly, that is not the case. Hard is it is to believe the market continues to grow weaker, sales continue to decline and prices continue to fall.

There is a bit of a new wrinkle to January's sales figures. Last year the condo market some more strength, although you could hardly describe it as strong, than the single family market. The reverse now seems to be the case. In December 2008 and now in January 2009, the closings for condominiums plummeted. Condo closing in January 2009 were almost 60% fewer than for January 2008. The end result of this is that January ended with almost 27 months of standing condominium inventory. Remember, six months of inventory is considered a level that leads to stable prices. Twenty seven months can only mean one thing, look for condo prices to get hit hard in the the early part of the year.

The single family market continues to weaken, just not a dramatically. Closings reported for single family homes were off about 23% in January this year when compared against January last year. Keep in mind, sales of single family homes were off about 22% in 2008, so the latest figures give no indication that the market is bottoming out. Standing inventory for single family homes in January was just over 22 months. You know what that means for prices, down they go.

So far the incredible amounts of money that the government has thrown at the problem has had not visible effect. The focus continues to be on the supply side of the equation, but that would not appear to be where the problem lies. Right now there are only slightly more homes for sale around the county than there were in 2006. So why is there so much pressure on prices? Sales have plummeted.

If our government wants to approve things, they needs to focus on the demand side of the problem. Until there is a greater appetite for real estate, the situation will continue to be bad. I have to admit, as a veteran of 30 years in this business, I am getting tired of reporting the same distressing news month after month. I would like to be able to say there is a light at the end of the tunnel, even if it is a freight train coming straight at us. But there is no light, in fact we may not even be in a tunnel.

Hopefully things will improve soon. The government is about to pass the largest single expenditure legislation in the history of the world. Perhaps that will help. If it doesn't, watch out!

Mortgage Bailout Plan Is The Government Version of Predatory Lending

The mortgage bailout plan unveiled yesterday, designed to "help" homeowners in financial difficulty stay in their homes, is a perfect example why we should board up the windows and barricade the doors whenever the government attempts to come to our rescue.

What has been proposed is little more than a government version of predatory lending. Here are the basics as I understand them. Homeowners who are delinquent on the mortgages and have no equity in their homes can get a loan modification whereby the rate would be adjusted to 3% and the total housing payment for the homeowner would not be more than 38% of the monthly income. All this is based on a 40 year amortization schedule. So good so far.

Now here is the bad (predatory) part. Nothing is being done to change the mortgage balance. Let's say you bought the house for $300,000 and the mortgage was $280,000 and now the house is worth $200,000. That means your have negative equity in the home of $80,000. Let's also assume that the rate adjustment with the payment limit would equate to a $180,000 mortgage. If you stayed in the home for forty years, which is unlikely but possible, you would still owe the lender $100,000 at the end of the mortgage.

If you sold the house, which is more likely, you would have to pay off the full mortgage amount of $280,000. Since the average family moves every 7 years, what are the chances that the prices will stop falling and then appreciate enough to get the value back to around $300,000 before you move? Not likely.

The government thinks this workable based on the notion that housing prices inevitably go up. Isn't this the same assumption that got us into this mess in the first place? This program will do little more than postpone the day of reckoning that troubled homeowners are currently facing. It is very unlikely to solve their problems. Isn't it ironic that we listen to our elected officials to rail against the predatory mortgage companies, yet feel it is OK to offer the same kind of garbage in the name of "assistance"?

As a real estate broker, I want to see the market improve ASAP. I wish this sounded like a solution, but it doesn't. It sounds like another reason why government intrusion into the private sector is likely to make a bad situation even worse.