In October 2010, mortgage rates reached record lows on news that high foreclosure rates were going to haunt the market longer than anticipated because some lenders used “robo-signers” to incorrectly expedite paperwork. But panic quickly turned to pleasure.
As banks pulled foreclosures off the market to recheck them, new foreclosure filings in November 2010 were not only down 14% year-over-year, according to RealtyTrac, they dropped a whopping 21% from the month before – the fewest on record since February 2009. New filings also fell in November.
That’s great news if you’re a seller, because foreclosed properties were crowding the market as well as impacting prices lower. Foreclosures were 1/3 of the market in 2010 and they typically sell for as much as 26% under market, says Realty Trac.
Meanwhile the economy showed signs of improvement:
• Consumer confidence is up to 54.1, from 49.9 on a post-election bounce, says the National Association of REALTORS® (NAR.)
• Home price declines are narrowing, says the NAR.
• The Dallas Fed Manufacturing Outlook Survey is up, along with survey data that showed better general business conditions, labor markets, and prices.
• Private sector employment increased 93,000 in November, says the ADP Employment Survey. That’s good news following the Labor Department’s announcement that the unemployment rate rose from 9.6% to 9.8%.
• Hourly earnings on private nonfarm payrolls rose by 1 cent in November to $22.75, and payrolls gained 1.6% year-over-year.
• Gross domestic product grew at an annual rate of 2.5% in Q3 2010, says the Commerce Department.
U.S. households reduced debt for the 10th straight quarter by the end of September, says the Federal Reserve. Stock portfolios helped push net household wealth $1.2 trillion to $54.9 trillion, not too far from the record peak of $65.9 trillion in Q2 2007.
Last, U.S. companies are sitting on $1.93 trillion in cash and short-term assets by the end of Q3 2010, the highest level since the Fed began record keeping back in 1952.
That’s good and bad. Consumers and businesses have more cash to spend, allowing money to circulate through the economy, but fear is keeping that cash on the sidelines.
The Housing Market Outlook
Like a pendulum that has swung too far, the housing correction has also gone too far, so that housing offers terrific buying opportunities. That’s not likely to change in the first quarter of 2011, until employment numbers improve.
That has most analysts agreeing that the Federal Reserve will keep overnight borrowing rates cheap, which will in turn help to keep mortgage rates down.
The continuation of the Bush-era tax benefits and extended unemployment benefits are likely to have a positive effect on business. Business is waiting for clarity, which is why it’s hoarding cash, and got what it wanted with a cut to payroll taxes.
Gross Domestic Product is likely to grow to 3.5%, which is a more reasonable pace for a recession recovery than the anemic 2.8% of 2010.
Consumers will resume spending in a sigh-of-relief economy, and that will include buying houses, but stricter requirements for government guaranteed and secondary market-ready loans will prevent many borrowers from qualifying for many homes.
That alone will keep pressure on home prices. While jobs slowly improve, national housing inventory grew, and more homeowners are underwater; 23% of homeowners owe more on their mortgages than their home is worth on the resale market. That means fewer can change homes.
Those are among the reasons 2011 may possibly go down as one of the best years in modern history to buy a home. National home prices have reset to where they were a decade ago. Mortgage interest rates are barely above all-time lows. As long as the housing market lags the general recovery, buyers have an unprecedented opportunity to borrow and buy as cheaply as they’re ever likely to.
Home prices will deep freeze for the rest of the winter, but once the spring buying season begins, pent-up demand could propel sales volume to its highest level since prices plummeted over four years ago.
Buyers will remain skittish and hypersensitive to price and interest rates as they digest the inevitability that buying conditions are changing.
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