“All markets are unequal in other ways. Consider a Microsoft engineer in Seattle with a great salary and a top-notch credit score. A good-sized home in an upper-middle class neighborhood is priced at about $800,000. A jumbo loan is required. But a jumbo loan in the current environment is very expensive. Fortunately relief is on the way. Congress and the White House have realized the unequal treatment of loans to some consumers and have now decided to raise the loan limits on FHA and GSE loans (albeit temporarily). As a result, by late spring, home sales on higher-priced homes will pick up.
As for the economy, it will be close but we will skirt recession. Job gains of around one million can be expected for all of 2008, though that would be down from the 2 million annual average gains over the past two years. Affordability will improve as well — NAR’s housing affordability index is expected to rise from 113 in 2007 to 129 in 2008. Job gains and rising affordability conditions are the right combination to induce buyers into the marketplace.
The current market cycle is unique because of significant local market variations. It is also unique because of the buyer psychology factors — in spite of pent-up demand and improving affordability conditions. Our forecast is, therefore, more uncertain. Having said that, home sales in the second half of 2008 will be notably higher than in the first half of the year.
Finally, let me paraphrase Warren Buffet’s investment philosophy: when everyone is greedy, be scared and when everyone is scared, be brave. Now, I am not an investment counselor and I do not encourage people to buy simply based on this logic. Rather, if people have the financial capacity and are looking for a home for the long haul, the fear factor should be put aside. Current situations in many local markets present a golden opportunity in attaining the American Dream with historically low interest rates. ”*
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