by, Tim McLaughlin, VP Weichert Financial Services
As we enter the New Year, the two biggest questions we hear are “what will happen on the housing front in 2011” and “what are the expectations for interest rates”? There is a lot of chatter about this, not only in our industry, but in the broader markets as well.
Strictly speaking from a market perspective, there are five general factors that appear to be driving how the housing market will develop in 2011:
- Employment: Certainly, it stands to reason that the higher the employment rate in this country, the healthy the housing market will be with new, willing entrants. Today’s employment data report was a good start to the year, with the headline unemployment rate dipping down to 9.4% (down 0.4%). Some noise in the data release, but hopefully a positive sign of things to come.
- The Foreclosure Process: How long it will take to process, list, sell, and clear all the pending foreclosures will have a direct impact on the housing sectors inventory level. “Robogate” stalled the process in 4Q10, but with foreclosures once again being processed at the beginning of the year, the sooner we clear the existing inventory of foreclosures, the quicker we normalize the housing market.
- Regulatory Changes: The future of Fannie/Freddie, the Dodd/Frank Act, Risk Retention, Compensation Rules -> all items that you may have heard about directly or on the periphery that will shape the way business is conducted and will indirectly impact the Real Estate sector in the year ahead.
- Underwriting Guidelines: 90+% of production is now connected to some type of government agency. In order for that to change, private lenders are going to have to step up lending
- Interest Rates: A lot of interest rate projections are based on what the economy does in 2011, and there is an inverse relationship between the recovery in the market and rates. Most economists project that if the economy stays cool, interest rates will trend lower. The hotter/quicker the economy recovers, the more interest rates will rise. The important takeaway is that rates are still at historical lows, with Fixed Rates loans starting with a 4 in many cases, and hybrid ARM’s still in the 3+% range.
Any questions please feel free to call us about the financial market and the local Princeton real estate market.