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Michael Buff…, Real Estate Pro in Rio Rancho, NM

What is driving this ever improving market? What do you see the market doing in 2, 4, 6 years?

Asked by Michael Buffington, Rio Rancho, NM Sun Dec 9, 2012

My listings are selling, and I am actually working with buyers! What do you contribute the change to? We have had low rates for a while... Not as many foreclosures on the market, which is probably helping... What do you think is driving this market?

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Hey there Michael,
In all the years I've studied the economy the one thing that is consistent is consumer confidence. Regardless of what all the media outlets report, if consumers generally feel good about things they act. It is a sheer case of party or no party mind set.

Long term mortgage rates have been obtusely low for way too long. This little blip is artifically propped up by the Feds buying long term mortgage backed securities trying to push a difficult economy along. What they failed to realize is that the very policies they put in place in 2008-2010 actually handcuffed many of the lending institutions from lending. The low rates are not the issue and the legislators don't realize it.

I believe people are starting to get comfortable in a bad environment. The shock is over and as this becomes more normal, people go back to doing what they've always done. In real estate, they are now feeling good about the lower home prices & their ability to borrow. Banks are figuring out how to manage new regulations which is loosening up some residential lending.

Warren Buffet said it best when he said, "When there's blood in the streets buy." Basically, when the media is saying good things, people tend to follow suit. When the media headlines are negative, consumers follow suit. If you notice, the headlines are showing more and more positive slanted messages.

I do believe we're in for a good ride again until it all unravels. I will caution any excitement rolling forward. When the Fed stops buying MBS to drive rates down, watch rates rise rapidly into the 6-7% range. I don't anticipate it happening for another year or so at minimum, but I do see a quick rise.

Hope that is helpful. I will say that I've had my license for 3 weeks now and already have 4 closings scheduled for January. 2 of the closings were listings I took! Yes, there is a difference in the air for sure.
0 votes Thank Flag Link Fri Dec 21, 2012
Good morning Michael!

I have done a lot of research too in regards to the local economy. I have noticed a lot of new construction going up and it appears that about 85% of the REO properties are either Fannie, Freddie, HUD or VA. Interest rates are low, Aimloan.com is offering 3%  and 0 points with 20% down on owner occupant 30 year lock (http://realtormag.realtor.org/daily-news/2012/12/10/whats-re…). There is a serious interest that our government has in improving the market. All of the hostile bank takeovers have been accomplished and it appears the money is back in the hands of the powerful. There are still a lot of properties that are vacant and FNMA appears to have a dark shadow inventory (http://www.kcmblog.com/2012/12/14/time-it-takes-to-complete-…) but the media pundits appear to be pouring on the good cheer which is somewhat believable. I find the foreclosure info graphic referred to in the previous site important because it shows the states like Illinois have a long foreclosure process and they are currently still experiencing a sluggish recovery due to large influx of foreclosures. I have always estimated a turn in the market when renting is less profitable than owning. I have also noticed that there are a healthy number of luxury estates being sold. Overall I would say that it is a good time to buy real estate wisely as a long term investment of 10 years or more although there are always the occasional good flipping prospects.

My concern is how the government is going manage the fiscal cliff through this balancing act to recover the housing market in relation to maintaining a quasi good national reputation. There is an enormous amount of pressure on the government to cut spending and there is a lot of cutting that can be performed to FNMA's involvement in the lending sector of our American economy. This is a very dynamic issue in of itself and I don't foresee this creating another downturn in housing prices for another few years at the least.

Merry Christmas and a Happy New Year
Arthur


PS: My twitter account has some interesting real estate posts From December 10th and prior, so saddle up and get a view from the top.
0 votes Thank Flag Link Sun Dec 16, 2012
I think it's all about supply and demand coupled with a huge decrease in new builds and an incredibly low and stable interest rate. In 2003, when we were starting our "peak of 12-15% increase in ABQ" we were at 2400 active single family residences. 2009 at the pit of the downfall we peaked at an all time high of 7200 Active homes. Currently our supplies are back down to 3900. Less homes in the market with more new buyers entering the market (due to holding off for a few years during the most turbulent times) makes for a higher demand.

Also, just as the stock market is approximately a 17-20 year cycle, so is Real Estate, historically. If that is accurate, as most financial analysts will agree with, then it stands to reason, we have to begin our slow and steady climb upward. If I am correct, this would put us at peaking again around 2018-2020. We are seeing houses with competing offers again because investors, having seen low pricing and low rates are buying again. Some are buying, upgrading houses and flipping and others are going to hold onto them for rental properties until the prices peak again.

To me, it all makes perfect sense in the cycle of Real Estate.
0 votes Thank Flag Link Sun Dec 9, 2012
In my opinion,.....

The artificially low rates are the driving factor in the market's stability. Real stability will come when the job market is stabilized. We have cycled through a significant foreclosure inventory, but there remain areas where foreclosures are more than one-third of the sales.

Lending guidelines have been stringent, but those that qualify have more purchasing power due to the low rates. There are fewer buyers, but those who qualify can purchase more. What happens when rates go up? In the bond market, when rates go up, prices go down. I expect the politicians and Fed are counting on inflation and loosening the lending guidelines to stabilize prices and increase demand when rates start upward.

The low rates are probably necessary to stabilize the housing market, but they are symptomatic, and do not create real stability. I think the housing market/economy will be stable if interest rates and the unemployment rates are in the 6-8 percent range, and median housing prices are seasonally consistent. over a 2 year period. Housing starts will likely be a good indicator of stability or improving real estate market in Albuquerque.
0 votes Thank Flag Link Sun Dec 9, 2012
I think our market recovery is a mystery given how bleak the employment picture continues to be. Everywhere else in the country where the market is recovering it is due in large part to the job market recovery. Low interest rates have to be driving some pent up demand.
0 votes Thank Flag Link Sun Dec 9, 2012
There's nothing that I contribute the change to. I've been selling as before. I would attribute the improvement to an influx of cash and rising incomes and savings.
Web Reference: http://www.archershomes.com
0 votes Thank Flag Link Sun Dec 9, 2012
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