So good resources here – thank you. The quote at the end though seems out of place and not logical though:

Cheaper gasoline is going to be pretty temporary, and I’m not sure how that will help fuel a surge in the segment of first time buyer’s closer to down town. Cheaper fuel if anything pushes people out to further.

The final part of the quote can be paraphrased as “watch the least experienced segment of housing buyers, because they will start the trend”. Ok, maybe that will end up being true, but I can’t say it’s a smart thing to do. Those are the same people who were fueling the bubble because they were being convinced they’d be priced out “forever” if they didn’t buy “now”. … I seem to be missing the logic here…

I agree that cheaper gasoline may not be the driver here.

I think that the recovery will happen closer in to downtown cores (I don’t have data but anecdotally I feel like people are willing to live in smaller spaces to be closer to work to reduce commute times) at lower price points (financing will be more accessible below the conforming loan limit) and will be led by first time home buyers (because they aren’t burdened with a house to first sell.)

As the first time home buyers enter the market they’ll provide existing home owners the opportunity to once again start moving up because there will be demand for the homes they need to sell first.

I’m open to alternative theories on where the recovery will start .

My opinion is that first time buyers may lead the comeback because housing is going to be ‘affordable’ again, as the bottom drops out.

My feeling is that we’re going to see a slight trend upwards for the next 8-10 months, but starting third quarter of next year, a huge number of ARMs are going to reset…for a period of 5 years. Now, if the mortgage industry, Washington D.C., and the banking and credit industry are actually thinking ahead that far, they know that these massive numbers of ARMs are going to cause the same kind of problem we’re having now.

Are they going to leave the interest rates where they are, or are they going to charge these people according to their contracts?

If people’s payments on these ARMs don’t move significantly, i.e. $100-200 max, then we’ll continue to see a slight growth curve upwards. But, if the ARMs reset/recast like they have in the past, then we’ll move back into a huge downward spiral for 5 years or so, where people are not going to want to be in the market because of the coming bigger economic crash.

Gary

Thanks for your opinion. I hadn’t taken into consideration the effect of ARM resets. Can you point us to any data on ARM reset dates?

A slight upward trend over the next 8-10 months? Upward trend in what? Foreclosures?

Seriously, the economy is not going to get better over the next 6 months, unemployment is rising, layoffs will continue.

As for when I see the recovery starting… When home prices are more in line with incomes and become more affordable. Unfortunately incomes are not heading in a positive direction right now (those that still have incomes) – so home prices will continue their decline for at least a while. I think we’re in for a period similar to the late 80s through mid (to late) 90s where prices are slightly down to flat for quite a while. If we’re lucky.

As credit markets find a new “normal” we’ll start to see more sales, but I don’t think we’ll see rising prices anytime soon. Lenders are going to have much stricter requirements than they have over the past few years (they have to).

The following article has some good info on ARMs, and also Pay Option ARMs which are going to be increasingly coming due. These loans are going to lead to even more foreclosures.

Having said that, with 30yr mortgage rates dipping under 5%, maybe we will see a short term bump in the market. I still don’t think we’re going to see any sort of upward sales or price trend anytime soon though…

Forgot the URL:

http://www.msnbc.msn.com/id/28035238/

Gene, you said I think we’re in for a period similar to the late 80s through mid (to late) 90s where prices are slightly down to flat for quite a while.

Where were prices down to flat for the 7 or 8 year period you reference above? Certainly not in the Seattle metro area.

Sorry, that was in the Northeast (New York area specifically), rather than Pacific Northwest. When I lived out there, prices were down to flat for quite a while after the run-up during the mid to late 80s.

I do think that once the current projects that are still in progress finish (12-18 months from now?), that we’ll start to see a supply constriction and prices starting to rise – but before that, I doubt it. (This time I’m talking Seattle.)

In King, Pierce, and Snohomish Counties, the conforming loan limit was lowered from $567,000 to $506,000 in November 2008. The $567,500 limit was a temporary increase.

http://www.ofheo.gov/media/news%20releases/CONFLL110708forOFHEOgov.pdf