The long-awaited event is gearing up and will greatly surprise the media, the Wall Street gurus, the apartment dwellers, the naysayers, and nervous homeowners. Real estate is preparing for the turn; are you? It will be a small one at first, but its momentum will make some forward-thinking lenders once again focus on profits, not losses. I am going to tell you why this is about to happen and what you can do to profit from this. The rest is up to you.
A little background: the average price of a house, as reported all over this country each and every month, is determined by the number of houses sold in the area multiplied by the value of the houses and then divided by the number sold to get the average price. It is a flawed system and has been used to overstate the upside and exacerbate the problem on the downside. Why? Because there isn't any adjustment for product mix. The price of individual units doesn't work because of the discrepancies in the size and the houses themselves.
The last year brought in a new problem: availability of home loans. In August of 2007, the jumbo market - loans over $417,000 in the continental U.S. and $625,000 in Alaska and Hawaii - started to dry up as a secondary effect of the subprime crisis. By the start of 2008, they practically disappeared, skewing the average home price calculations. Besides foreclosures, the majority of sold houses carried conforming loans, up to $417,000, and were of lower value. Comparing those to the same month a year earlier was akin to comparing apples to crabapples; same family tree but no relationship. Along with the drying-up of jumbo loans came the drying-up of stated loans, so even those few portfolio lenders that still offered jumbo money cut the spigot in half.
The good news is it is almost August, allowing us to compare year-to-year average prices of homes without much jumbo loan participation. 2007 to 2008 will be apples to apples, and the results will be refreshing: rising average home prices. How do I know this? Demand is picking up all over this nation as the investors and the risk-takers have stormed the housing market to capture the incredibly low prices. They have seen the three main factors that will bring a housing upturn.
1. The need for housing to facilitate the ever-expanding population.
2. The weak dollar giving huge discounts to foreigners who wish to buy our real estate.
3. The rise in the price of commodities that make replacement and new construction more expensive than the price of current housing.
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.