REALTOR® Magazine-Daily News-Inman Panel Bearish on Housing, the Economy

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Daily Real Estate News | January 10, 2008 | Inman Panel Bearish on Housing, the Economy
IThe outlook for housing, and the overall U.S. economy, isn’t a pretty one this year, said speakers at Wednesday’s opening sessions of Real Estate Connect, a conference in New York City sponsored by Inman News.

U.S. credit market troubles will continue this year and spread their economic pain to the overall economy, pushing the country into recession, they forecasted.

Brad Inman, founder and publisher of Inman News, predicted that housing would remain in the doldrums through 2009. But the market will bounce back as it has in past recessions, he added.

For example, U.S. home sales fell from 4 million units in 1978 to 2 million in 1982 but recovered to 4 million sales two to three years after that downturn, he said. “It’s a cycle and there are opportunities,” he said.

Dottie Herman, president and CEO of Prudential Douglas Elliman, a New York City-based real estate brokerage, agreed. “People have to live some place,” she said.

Buyers are still in the market, she added, and they should be thinking about locations and properties that appeal to their needs, not trying to time a market bottom in house prices. “You can never time a market,” she said.

Credit Woes

Other panelists were negative about the prospects of an economic recovery in 2008.

“It’s likely to be the death of a thousand cuts,” as major Wall Street firms continue to write-down mortgage-backed and other securities, which have plummeted in value because of defaults, said Barry Ritholtz, chief market strategist with Ritholtz Research, a New York-based financial advisory firm.

What the credit markets’ problems mean for housing is that “it’s going to get worse before it gets better,” said Noah Rosenblatt, founder of UrbanDigs.com, a site that discusses Manhattan real estate investment trends.

It’s been seven months since Wall Street firms and others began writing down the value of troubled mortgage-backed securities, Rosenblatt? noted. “We had four to five years of lax lending standards (for mortgages). That won’t be fixed in seven months,” he said.

Pain Relief

To help relieve the pain felt by home owners, President Bush, in December, signed the Mortgage Forgiveness Debt Relief Act. It gives borrowers a three-year window to refinance and avoid paying taxes on any debt that's forgiven. Bush also announced the Hope Now initiative (http://hopenow.com) to provide credit counseling to troubled borrowers.

Meanwhile, the push is on to increase loan limits on FHA-guaranteed mortgages. An increase would provide a safer alternative to many borrowers who, in the past, might have used subprime financing. In the fall, the House and Senate passed separate versions of FHA reform bills, both of which would increase the loan limits. The bills now move to conference committee, and President Bush, who has expressed his support for higher limits, is expected to sign the compromise bill.

However, panelists at the Real Estate Connect conference's opening session weren't optimistic that federal action would bring a quick recovery. Nouriel Roubini, an economics professor at New York University, thinks a recession this year will be more severe than the economic downturns the country experienced in 2001 and 1990.

The shoddy lending standards practiced the past two years in the subprime sector also were prevalent in the near-prime and prime sectors, he said, so home owner payment problems will soon become evident in those areas as well.

NAR economists have been far less gloomy in their outlook. They say a sizable pent-up demand will steadily reach the marketplace in 2008, thereby stabilizing the market conditions. (For more details on NAR's forecast, go to http://www.realtor.org/reinsights.nsf/pages/home)

— By John N. Frank and Stacey Moncrieff for REALTOR® magazine online

To read more dispatches from this week's Inman Conference, visit REALTOR® magazine online's editor's blog, Speaking of Real Estate.