Tranzon Auction Properties - Real Estate Auction Blog

Man oh Man, the latest summary from the Costar Watch List sure is depressing. Quickly gets me thinking…”How do I advise clients? Buy? Sell? Hold?” The quick answer is if you can afford it and SELL sooner vs. hedging for a better season in the spring. Unfortunately what I keep returning to is that there is just no easy answer and every situation has to be addressed on a case-by-case basis. The good news is our auctions are still producing buyers and we are still moving product. Though as we mentioned in the Tranzon Auction Leader a few posts ago, buyers are leary. Compound this with the fact that the media isn’t doing anyone a favor using the real estate market and foreclosure news as the topic of the day, the mediocre response from consumers during the holiday season and the outlook in the Northeast of a long dark winter with expensive oil and we have a decidedly unstable market.

The Following is excerpted from the report - Click Here for entire article.

Written by Mark Heschmeyer
Housing Outlook Dims for 2008

Is a Complete Recession Unavoidable?

Thanksgiving may have kicked off the time for holiday cheer, but the news on the nation’s housing front has been anything but cheery.

Report after report released in the past two weeks forecast bleak times ahead with more foreclosures, lower home values, dampening consumer spending and make credit even harder to come by for a long time. Some suggest that a complete recession is unavoidable.

The Federal Reserve Bank of Dallas said that the housing market’s adjustment to tighter lending standards is likely to be prolonged, according to the November issue of the Economic Letter.

“The muted outlook for home-price appreciation, coupled with the resetting of many nonprime interest rates, suggests foreclosures will increase for some time,” economics writer Danielle DiMartino and vice president and senior policy advisor John V. Duca wrote in a Fed report.

The sharp downturn in home-price appreciation may also dampen consumer spending growth, an effect that may worsen if the pullback in mortgage availability limits people’s ability to borrow against their homes, the authors state.

The slump in global credit markets will force banks, brokerages and hedge funds to cut lending by $2 trillion, triggering the risk of a “substantial recession” in the U.S., according to Goldman Sachs Group Inc.

The losses related to record U.S. home foreclosures may be as high as $400 billion for financial companies, wrote Jan Hatzius, chief economist at Goldman in New York. The effects may be amplified tenfold as companies that borrowed to finance their investments scale back lending, the report said.

“The likely mortgage credit losses pose a significantly bigger macroeconomic risk than generally recognized,” Hatzius wrote. “It is easy to see how such a shock could produce a substantial recession”‘ or “a long period of very sluggish growth.”

With home prices declining, consumer credit deterioration is not far off, Goldman analyst said. The downturn in housing is spilling over into employment in some states and is leading to high consumer losses.

Adding to the problem is the fact that another $500 billion of adjustable-rate mortgages (ARMs) are scheduled to reset during the next two years. According to Laurie Goodman, managing director and global co-head of fixed-income research at UBS AG, the glut of ARMs is sparking a cycle that will likely drive U.S. home prices down farther in 2008.

“It’s a sort of vicious cycle that we will muddle through, but it will be painful,” Goodman said.

Foreclosure Impact Widespread

According to a report prepared by Global Insight, Inc. for the U.S. Conference of Mayors and The Council for the New American City, the foreclosure crisis will have profound economic effects in 2008.

U.S. GDP will be $166 billion lower as a result, because new residential investment will be weaker, lowering spending and income across the construction industries, and because consumer spending is curtailed as homeowners respond to decreased home equity wealth.

Both of these spending impacts have multiplier effects across the economy as lower incomes decrease demand for other goods and services. As a result, there will be 524,000 fewer jobs created across the country in 2008.

Homeowners will also see property values decline by $1.2 trillion in 2008 due to three factors.

The initial adjustment of over-heated home prices to the combination of weaker market demand and large inventories of homes for sale would have reduced values by $676 billion in 2008. Now, due to the foreclosure and mortgage crisis, home values will decline further, by an additional $519 billion. Foreclosures in 2008 will increase by at least 1.4 million. These homes represent a market value of $316 billion.