US housing market kaput?
Classic Business Day gets a US realtor on the line to find out whats really happening in the US housing market and if its as bad as some are saying
LINDSAY WILLIAMS: The US housing market we are told is in decline. US mortgage lending giant Countrywide announced its results yesterday - they werent particularly good, and the share price closed over 11% lower yesterday. People are now speculating that the first of the worlds asset bubbles is about to burst. We hear about the market in terms of the companies financials but what about the people at the coalface, the people that are actually buying and selling houses in the United States? Thats where the action really is. On the line now from Westchester just north of New York City is Steve Ross a realtor at Remax. Steve, are the horror stories were hearing in South Africa about the plunging US house prices actually real or is this a fabrication?
STEVE ROSS: It sounds like exaggeration - it doesnt sound like its totally out of line, but extremely exaggerated. We are probably down 10% from two years ago - so the direction is correct, but thats after being up over 100%. While that might sound like a bubble thats been traditional for real estate around here for the decades that Ive been around - Ive seen many trends where over the course of a period weve gone up 100%, and then theres a correction while house prices and affordability get back in line. Prices come down 10% stay there for a little while and eventually usually run up again several years later.
LINDSAY WILLIAMS: The problem is of course Steve that 10% down in two years doesnt help the people that bought two years ago - and a lot of people have bought as the mortgage market has become more aggressive, particularly the sub-prime mortgage market - do you think this is contributing to the current downturn?
STEVE ROSS: Absolutely. 10% is not a large amount to go down if you bought 10 years ago and it went up 100% and it came down 10% - but if you bought two years ago with very little money down yes, absolutely, at that point youre faced with a problem - your house is worth less than what you owe.
LINDSAY WILLIAMS: Sure. The sub-prime market is one that has captured the imagination in financial circles anyway - its not something were familiar with in South Africa - do you have clients that are exposed to this debacle?
STEVE ROSS: If you mean lenders no, Im not involved with the lenders - but I know people that I talk to who dont have very much equity, who are upside down in their homes. For them its a stressful situation because theyre kind of forced with a selling situation - but its still not the majority of the market. Its a very small part of the market at this point at least.
LINDSAY WILLIAMS: The area that youre based in is Westchester - which is very much as far as I know with my limited knowledge Ivy League country. What about the rest of the country? America is a vast place - what about places like the Midwest and further south Florida? Are they faring worse than Westchester?
STEVE ROSS: I think we are in the middle - Im hearing some places are actually doing well but not many, and Im hearing places are doing worse. Florida you bring up as an example - Florida had a little bit more excessive speculation because of the belief that the Baby Boomers were getting ready to retire in the next 10 years, and they were going to be moving south looking for sunny climates and Florida was going to be their home. So there was extremely rapid construction and appreciation there - and the drop there has been more than 10% - but I get the feeling and what Im reading and what Im seeing and talking to other agents across the country that on average thats about where it falls in line - about 10%. As you suggested if you bought a house with less than 10% down you do have a problem.
LINDSAY WILLIAMS: The behaviour of buyers and sellers - has that changed markedly for example in the first seven months of this year? Are the buyers getting a little bit more circumspect and cheekier and the sellers becoming a little bit more desperate?
STEVE ROSS: Yes, I would say thats definitely true. Obviously we were going through a period of time when there were many more buyers than sellers - so buyers were in a position where they had to jump or miss the boat, and sellers could be cocky. Now, as you suggest the situation is reversed - buyers are cocky and not overly worried about missing the opportunity feeling theres another one right around the block, and sellers are in a position where if they arent aggressive in their pricing someone else will sell the house, not them.
LINDSAY WILLIAMS: How important do you think is the US housing market for the overall US economy? Again, youre right at the coalface - you broker deals between buyers and sellers, and its a major investment - are people starting to worry about it?
STEVE ROSS: Theres a certain amount of people that are worried about it. I think most people I talk to still see it as a home - and more importantly I think most people look past the short-term with the belief that while they dont know where the market is going in the next year or so, past experience has been that if youre looking out on a ten-year horizon youre pretty safe. Whether thats true or not no one can say for sure - but obviously most of the buyers I talk to are looking for a home and willing to bet that the long-term is at least positive.
LINDSAY WILLIAMS: Yes, property in the long-term has always been a good bet
Article by: www.businessday.co.za