From Greece to Korea to the Gulf. Does that just about cover the globe? When we talk about a “global economy,” now it has some specific meaning. In previous columns, I mused about how hard predicting the future really is. If anyone could predict the future, frankly they would be doing something else for a living. Most likely it would be on the beach. Let me ask you, how many predictions did you read that rates would be heading down to their absolute lows as the summer approached?
I did predict a wild ride. Wild rides usually mean that the markets will be moving in both directions, rapidly. While the European debt crisis was absolutely predictable, but who could have predicted …
►A South Korean ship being destroyed allegedly by North Korea—especially when relations between the two seemingly were thawing a bit.
►A drilling rig exploding in the Gulf and millions upon millions of gallons of crude dumping into the ocean, while the efforts at containment are horrendously ineffective. All this happens while the government is about to start issuing permits to expand drilling and we are also expanding our search for alternative energy sources. What could this spill do to our economy of not only of the Gulf States, but also the economy of the entire country? I read an article recently that stated that if the Gulf Region were a country, it would be the 29th largest country in the world.
Whether it is Mother Nature or human nature causing the chaos, predictions are absolutely fruitless. And that is why we don’t know if rates are going to skyrocket or dive in any one month, let alone next week. Of course, they could do both. Word to the wise … if at all possible, be prepared for both and most likely you won’t be disappointed or caught off guard. This is why you need to know what the markets are doing from hour-to-hour and also why you need to know what “scheduled” events are likely to affect rates (see below for information on a free trial for the RateLink advisory service). I am sorry that we cannot give you the unscheduled events.
One area that has been overly scrutinized with good reason is the issue of shadow inventory. Shadow inventory consists of houses owned by banks or houses that are still to go to foreclosure. By broader definition, it could also include homes that would be for sale tomorrow if sellers thought they would sell. Researchers have pegged this inventory at anywhere from a low of three million to around 10 million. Everyone has agreed that the housing recovery is not permanent until this inventory is gone or at least reduced to a manageable level. Forecasts say that this period of working through the inventory could last anywhere from three years to seven years on a national basis. For some areas, the time frame is shorter than others. Some are saying that it could be as long as a decade for the hardest-hit states.
The conservative forecasts also indicate that we are in line for a double dip in housing prices as this inventory works its way through the system. Some would argue the logic that the markets’ movements this spring are indicative of such a prediction, including lower rates, lower oil prices and a lower Dow. Keep in mind that the markets are no better at predicting the future than we are.
My advice this month for producers? You should be directly involved in some way in the servicing of this market. It is too large not focus upon. Whether it is modification counseling, working with investors, facilitating short sales, working with bank inventory, helping real estate agents market their foreclosure inventory, credit repair or another aspect, there are tens of millions who will be affected for many years. This is a landscape that has changed our industry and there are opportunities to learn new skills and even set up new lines of income. For ideas, feel free to e-mail me at
[email protected], however, make sure you describe what your involvement has been up until this juncture so I can best assess the opportunities with which you might get involved.
Can the real estate market absorb this inventory without further damage? Yes, it is possible. Low rates, modifications, government aid programs and higher employment levels all would contribute to this scenario. The problem is that these factors are intertwined.
Recently, the National Foreclosure Mitigation Counseling (NFMC) program indicated that 58 percent of their clients listed unemployment as the main reason for default. So we just need to create more jobs. However, because the real estate industry is such an important employer, we cannot grow employment fast enough without a strong real estate industry. We cannot fix real estate without fixing unemployment and we cannot fix unemployment without real estate. Anyone dizzy yet?
I do recall in the early 1990s reading The Washington Post and the story I was focused upon was predicting the end of real estate appreciation. One decade later, we had the hottest real estate market in history. Too hot, actually. Yes, we have had decades of no appreciation in our history (more than one decade in a row after the Great Depression), but it seems that things happen more quickly today. For example, population growth heated up at the turn of the decade that that is one reason for this hot real estate market.
I am predicting that we will be working through the inventory quickly? No. I am just saying that predictions are tough. They are even tougher with uncontrollable events that could happen halfway around the world. Who predicted that 9-11 would have been one of many factors that helped touch off the real estate frenzy? For now, we are still in recovery mode even though the markets seem to be predicting a turn for the worse. Just about everyone had predicted a recovery of “stops and starts,” and therefore, no one should be surprised about this prediction coming true.
Dave Hershman is a leading author for the mortgage industry with eight books and several hundred articles to his credit. He is also head of OriginationPro Mortgage School and a top industry speaker. Dave’s Certified Mortgage Advisor Program can be found at www.webinars.originationpro.com. If you would like to stay ahead of what is happening in the markets, visit ratelink.originationpro.com for a free trial or e-mail
[email protected].
