Timing is not everything though. Timing is the first half. The second half is having your investment tools ready and in order; lender backing/pre-approval, cash moved into position, knowledge of the market so that when you pull the trigger, you are confident in your decision, as well as having discipline and the confidence to make a smart move. These are the basics that an opportunistic investor must have.

Also, Robert Schiller is quoted as saying that over the next 3-5 years, real estate values in the U.S. (in general) could possibly drop 10%-25%. That’s quite a broad range, and with it would be tough to lose, with a prediction like that. I think the 25% part, or anything near that is highly unlikely.

I think it is a great time to purchase homes, so long as you stick to the basic rules of smart investing/buying.

It breaks down and explains – with references and analysis – the primary areas of concern. While some of these areas are not anything new, Richard Berner (author) does a great job of pointing out the housing risks as well as the strong points through the end of 2009 and what to expect coming into 2010.

He warns of payback from the home-buyer tax credit (with scant reference to a smaller, similar situation back in 1975), rising unemployment, possible looming foreclosures being dumped on the market (shadow inventory), and builders competing with the current, sizable inventory of distressed properties.

However, on the positive side, rates are still low, affordability is much better and still improving, and inventory (although still higher than we’d like to see) is still trending lower, which is great.

First: In the Minneapolis and St. Paul area real estate market, we are burning through our supply of foreclosures much faster than we are short sales and with good reason: Foreclosures are much easier to deal with than are short sales. Even though the foreclosure process is after the short sale process, the bank deals and replies to foreclosure offers (usually) in a much timelier manner than they do short sales. Right now our market inventory is  @ 2,000 foreclosure units – or about a 2.3 month supply. However, our short sale inventory is @ 4,200 units, which is about a 12.6 month supply (keeping in mind short sales sell less and take longer to sell).

Our housing market will never be in true recovery mode (as a whole) until we A) greatly reduce the existing short-sale and foreclosure (distressed property) inventory B) greatly reduce the potential distressed properties, C) Stabilize the employment sectors and D) See true, tenable signs of recovery in our economy in general. We will really have to let the distressed properties run their course and ‘burn-off’ the current supply and also the future supply (of which it appears there is still a fair amount coming down the pike).

Now does this mean it is doom and gloom in all areas of the our local or national real estate market? The answer is a definite no. As I’ve been saying all along, some micro-markets – at certain price points – within our local and national markets are still holding strong and steady.  Examples: Certain parts of Southwest Minneapolis ($175K-$350K) , Edina ($225K-$415K), St. Louis Park ($175K-$250K) and West Bloomington ($175K-$300K) have all had busy activity and strong sales.  Of course, the $8,000 home-buyer tax credit and low interest rates have been a great motivator, but these areas usually hold well anyhow.

Upper-bracket sales update: As is much the case nationwide, in general, in the twin-cities, there is a large inventory of upper-bracket homes on the market. In the twin cities metro, we currently have about a 35-month inventory @ $1-million and up. Now this does not mean that a home in the Edina Country Club, South Harriet Park, Parkwood Knolls, or in Kenwood, Lake of the Isles, Lowry Hill, Lynnhurst or Linden Hills will take 35 months to sell, by any means. As I’ve said, the inventory is a 35-month supply, and many areas do much better than others, such as Medina, or Plymouth for example.

One of the difficulties is getting past one great myth right now: the myth that jumbo (loans over $417K) are an expensive, poor product. The truth is, in the past couple of months, jumbo products have come around and been lowered to historically great rates again, and there are now products in which you do not have to do 20% down, and also not have to pay mortgage insurance!

Example 1: A 30-year fixed jumbo can be had for 5.75%.
Example 2: A jumbo, 15%-down option with no mortgage insurance (MI) can be had for 6.1% (as of last Friday).

This is fantastic news for upper-bracket, but the word has to get out there. Right now, in upper-bracket sales, many excellent deals can be had and money (lending) is cheap!

July 2009 was the largest month-to-month rise in home prices (over June) that we have seen in over a decade. July was the third consecutive monthly gain in the Minneapolis/St. Paul housing market.

The article goes on to point out how consumer confidence is closely tied to losses and gains in the housing market (I’m quite certain we’re all aware of this by now), and how the good news is somewhat relative, as even though we are currently up, August is a tougher month than July was, and that overall we are down a long ways from the very untenable highs we had 4 years ago.

More to be revealed…

With the passing of each week it becomes increasingly difficult to argue that housing isn’t in full-recovery mode. This week’s data makes it nearly impossible, considering that sales of new homes spiked 9.6%, in July, to an annual pace of 433,000 units. The “experts” had expected sales to post at only 390,000 units. The increase was the largest since February 2005, helping to force the inventory of new homes down to a 7.5-month supply, the lowest in 16 years.

Even more encouraging, the most recalcitrant housing bear is starting to turn bullish. Robert Shiller, co-creator of the S&P/Case-Shiller home-price index, told Bloomberg that “we might be seeing a turnaround.” Understated, to be sure, but that’s Shiller’s style. As for his index, 18 of the 20 cities tracked showed improvement in June, up from eight in May, four in April, and only one in March.

Detractors will counter that the recovery is concentrated in lower-priced homes. True, but that’s changing as well. Toll Brothers, a luxury homebuilder, stated that declining cancellations and firming prices has allowed the company to reduce incentives and raise prices in selected communities. To quote Toll Brothers Chairman and CEO Robert Toll, “We believe that customers are recognizing that now is the time to get into the market to take advantage of near-record affordability in what is still, for now, a buyer’s market.”

More optimism can be gleaned from the fact that housing isn’t the only big-ticket sector showing signs of recovery. Orders for durable goods – those meant to last several years – jumped 4.9% in July, posting the biggest increase in two years. Yes, the “cash-for-clunkers” program was a contributing factor, but even without this incentive, other durable goods orders moved ahead 0.8%.

The gross domestic product numbers also suggest that all, if not well, is getting better. On that front, the government says the economy shrank at an annual rate of 1% in the second quarter, a better-than-expected showing. The drop, while representing a record fourth consecutive decline, was far smaller than the previous two quarters. It also was stronger than the 1.4% decline that many economists had expected.

Finally, mortgage rates continue to hold steady, a sign that inflation remains a non-issue. The 30-year fixed-rate loan continues to hold at 5.5% while the 15-year fixed-rate and five-year adjustable-rate loans continue to hold at around 4.9%. Today’s housing market remains a buyer’s market, with low prices and low borrowing rates, but keep in mind Mr. Toll’s quote, “for now.”

How Technology Helped Avert Disaster:

The economy was never going to get as bad as many had thought, and by many we mean the doomsayers predicting a replay of the 1930’s. Reason being, markets are too efficient and too knowledgeable today; many people are following all segments of the economy, thanks in large part to today’s information and communications technology.

A stock-market analogy is in order: Back in the 1930’s, Ben Graham, Warren Buffett’s mentor, discovered that buying stocks trading at dirt-cheap prices proved highly remunerative. Graham would parse financial statements for companies with a lot of cash and little debt – a tedious and time-consuming endeavor at the time. Graham’s modus was to buy companies for their current assets and get everything else – land, plant, and equipment – free. Graham’s strategy can’t be replicated today because information is so widely and cheaply disseminated that investors pounce before companies reach such levels.

Homes aren’t homogeneous like stocks, but there are many more information-savvy buyers vetting housing opportunities today than there were in the 1930’s, so prices – on the national level – are highly unlikely to collapse. (They can collapse in niche, depressed markets – inner-city Detroit, for example – but that’s always been the case.) Of course, there is always a risk of buying too soon, but buying too soon is still usually remunerative over the long run. The same can’t be said for buying too late.

*Disclaimer: This Newsletter is for informational purposes only. The information contained herein may not be applicable to every situation or jurisdiction and we urge you to consult your professional advisor prior to acting on information contained herein. The content, accuracy and opinions expressed herein are not verified or endorsed by the sponsor hereof.

Mortgage Matters is Courtesy of Lori Donnelly, Vice-President of Lending, M&I Bank, Minneapolis.
Direct: 612-904-8129
http://www.mibank.com/ldonnelly

Whereas I can see the  possibility of this in certainly markets, this would not be a universal, across the board mortgage crisis. Some metro areas are in much better shape than others. For example: the Detroit and Las Vegas areas will be offsetting the curve a great deal (in the negative), while other areas such as the Minneapolis area housing market, or the Dallas and Salt Lake City Housing markets are in much better shape.

It will be quite interetsting to see how this plays out, and I certainly hope Deutsche Bank is wrong in their prognostication for early 2011.

My advice if you are buying a home in the Minneapolis area housing market: if you can (depending on your price-point), buy your next home in Southwest Minneapolis, Edina and sometimes West Bloomington areas.

This means that if you should be targeting and seeing homes with your realtor now, as the final target date (best-case, last-minute scenario) is only about 70 days from now, if you would like the free, $8000.00 from the fed, just for buying a home. This would be a sad tax credit (actual cash in pocket, not a deduction) to miss out on, if you have been seriously thinking of purchasing a home.

How would you like 8 of these $1,000.00 notes?