Blog, Business & Finance

2010 Predictions

Once the cobwebs clear and I am back in work mode on January 1-2, I will be giving a complete update on how our local housing markets have fared since 2008.  It will be called “New Jersey State of the Market”.  It should be quite interesting to see some of the charts that we will post for sales prices and inventory sold. 

So instead of talking about the past and looking in the rear view mirror, let’s discuss my predictions for 2010 and look into our crystal ball.  We’d love to hear your predictions and feedback in our commenting section below. 

Isn’t it funny to hear all of the people in real estate, Wall St, etc saying that they saw this crisis coming from a mile away?  I worked with a large construction lender in 2005-2006, and one of the glaring issues I saw was that almost 90% of their entire portfolio was sub prime.  I pulled a few random files and noticed a common school teacher in Michigan on a $55,000 fixed income, with no other sources of income.  The bank had allowed her to close on 4 Constuction to Permanent loans totalling over $1.2 million.  Her intention was to flip the properties and establish quick wealth, something many people did.  Not sure you call that guilty, because everyone likes to have the American Dream in their sights.  Although I did not underwrite nor have anything to do with her loans, I thought to myself that this woman could be SOL and completely screwed if / when the homes were finally built. 

I have kept in touch with this woman as she contacted me in regards to the procedure to take to modify her loans once the homes were actually built.  The market tanked and she was left holding the bag on homes she could not afford and without modification capabilities.  The bank was forced to foreclose on all 4 of her loans.  In hindsight, I should have gone to Washington D.C, Wall St, and on CNN evening broadcast to expose this problem I saw.  I didn’t.  So that is my quick story on hindsight and why its easier to look ahead instead of what’s behind us.  I am a better, more educated real estate professional because of these experiences and if there is any good to come out of a crisis, it’s the big “Live and Learn” cliche.

I believe that unemployment will peak out in 2010.  Unemployment is the biggest driving indicator for the recovery of the housing market.    Until we see improvement in the labor markets, you can expect our homes to stagnate in value.  The four main drivers of today’s sudden surge in sales activity are the following:

1. Lower and more affordable prices
2. Additional foreclosure pressures
3. First Time Homebuyer Tax Credit
4. Low Interest Rates

So in 2010, where are we going?  Well, we can expect great sales months for about the first quarter of the year.  But let’s look at what is available out of our 4 drivers listed above after April, let’s say

1. Lower and more affordable prices
2. Additional foreclosure pressure
3. First Time Homebuyer Tax Credit
4. Low Interest Rates

As of today, rates are all over the board, however just 4 months ago, a mortgage with rates in the mid 4’s were not that hard to come by.  Today, on FHA we are looking at about 5.25% and slightly less on conventional financing.  I expect mortgage rates to end 2010 higher than what they ended in 2009.  Furthermore, I expect a “Cash for Clunkers” type of result when the First Time Hombuyer Tax Credit expires on April 30.  Unless the government extends this Tax Credit, which I doubt they will (If we need to I’m all for it though), then we will see a noticeable change in absorption rates.

In early 2008, the national average absorption rate was about 11 months of inventory.  An absorption rate indicates the number of months it takes to sell the current inventory at the present rate of sales.  Today, we have dropped to about 7 months of inventory.  My opinion is that we will settle in by Q3 of 2010 somewhere between 8 – 9 months.  I also believe that the inability of the Federal Government to purchase additional Mortgage Backed Securities will have an negative affect on real estate. 

That being said, I truly believe that today is a great time to buy.  At least get off the fence and start looking.  Look at it this way.  I believe that we will see an overall lower price of homes by mid year, lower than what they are today.  We are past the huge downward correction so any further declines may be subtle, but they will be there.  Buy a little bit higher today at lower rates and get your tax credit.  Or you can buy later in 2010 and POSSIBLY get lower prices with no tax incentives and no rates at what is considered par right now.  It’s kind of Catch 22′ish, don’t ya think? 

In conclusion, let’s wrap up with discussing Northern NJ.  Home sales in Hoboken dropped from 80 homes in October to 60 homes in November.  However since April, there has been a V-Shaped recovery in inventory sold (see graph).  I don’t expect a V-shaped recovery to sustain, but I see consistency.  With the extension and expansion of the First Time Homebuyer Tax Credit, we will see sales in Hoboken get stronger.  As jobs are created again, Hoboken will get stronger as we rely heavily on the financial markets similar to how NYC does.

Jersey City is leading the way and having a dominant Q4.  I believe that Jersey City will experience the same as Hoboken’s recovery and will lead Hudson County in overall performance in the early to mid part of 2010.  Same as Hoboken with employment.  As employment gets stronger, Jersey City will receive a big boost.

In the suburbs, I expect areas like Wyckoff and Montclair to make a push for growing markets.  For instance, at this time last year, Montclair’s absorption rate was nearly 9 months.  As of today, Montclair’s absorption rate is a strong 4 months.  I wrote an article in February 2009 about a pocket of homes listed for under $400,000 in Upper Montclair.  Those homes have sold and the homes left on the market for under $400k are far more inferior than the homes that were available in February.

So without further ado, I’d like to pass along the invitation to give me your thoughts and predictions.  Again, this is only my opinion and I do not want this to act in any advisory manner.  These are just my gut feelings that we are all entitled to express.  Looking forward to reading some of your thoughts!

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