Real estate has been awash in bad news. But amid all the negativity, a few bright lights, or proverbial silver linings, can yet be found. There is still some good news for realty brokers and homeowners.
Yes, home prices have declined in many cities across the country. But not everyone needs or wants to sell a home in this market, and some fortunate communities have been affected only lightly or not at all by the downturn. Prices of condominiums and co-ops in Manhattan, to take one example, actually increased in the fourth quarter of 2007, according to reports by several local realty firms.
And while those few unaffected markets may seem like small potatoes in light of the overall situation, the downturn also has demonstrated rather convincingly that real estate is still cyclical. Sooner or later, after some as-yet-to-be-determined number of months or years, housing markets will begin to recover. Indeed, the same cyclicality that optimists ignored in good times could be a comfort now that those good times have ended. Cyclicality also means realty brokers and salespeople who survive the downturn could be well positioned to prosper early on the upside when Fortune’s wheel turns again.
Yes, the mortgage market is a mess. But mortgage interest rates are still very attractive on a historical basis. Could anyone complain about a 30-year fixed-rate mortgage with an interest rate of less than 6 percent? Or a 5 percent 15-year mortgage? Traditional hybrid and adjustable-rate mortgages still come with very attractive interest rates as well. And some home buyers who can’t afford a 20 percent down payment now have a nifty tax deduction for mortgage insurance premiums too.
What’s more, sensible loan products and lending practices may be back in vogue now that the roof has been blown off the mortgage industry. Despite the short-term disruption, safe and sound loans are good news for housing markets and homeowners.
Yes, the volume of home sales transactions has declined dramatically in many parts of the country, but it would be quite odd if housing markets ever came to a complete standstill. Homes will continue to be sold regardless of market conditions as long as people continue to experience births, deaths, marriages, divorces, job transfers and other life-cycle events that necessitate new housing arrangements.
Yes, the dearth of transactions may trigger a painful shakeout among Realtors and a contraction among brokerage companies. Realtors who lack staying power will be forced to exit an overly supplied and highly competitive business while brokers who might be ready to retire will have an additional motivation to do so. A smaller industry could be stronger in the long term and better positioned for the next market rebound whenever it happens.
Yes, too many homeowners took on big, complicated mortgages that they can’t afford. But there are still alternatives to foreclosure: A short sale or loan modification may help many of these people resolve their problems or even hang on to their homes. And the next group of home buyers certainly should realize by now that they need to read their loan documents and understand how much their monthly payments might increase in future years.
What’s more, a federal law enacted late last year will allow more homeowners who suffered a foreclosure or short sale to exclude some forgiven mortgage debt from ordinary taxable income. That’s good public policy and should offer some people welcome relief from an onerous tax burden. The new law also gives surviving spouses two years to sell their principal residence and still exclude $500,000 from capital gains taxation. That’s another win for homeowners.
And while foreclosures and short sales aren’t happy outcomes for lenders or borrowers, these situations can create attractive opportunities for long-term, buy-and-hold real estate investors. Rental properties can still be a good business, and investors can get into some markets today at significantly lower prices.
Finally, 2008 is an election year in which all voters, regardless of their political affiliation or beliefs, will have an opportunity to go to the polls and select a new national leader. The pressure will be on for the candidates to put forward policies and programs that could have a profound effect on the health of real estate markets in the months and years to come.
It’s not easy to focus our attention on the rare bits of positive news that exist in hard times, but real estate practitioners have a well-deserved reputation for optimism and good cheer. Let’s bring it on, folks.
Copyright 2008 Marcie Geffner. All rights reserved. No part of this article may be used or reproduced in any manner whatsoever without written permission of the author.