The U.S. Treasury Department’s surprise takeover of Fannie Mae and Freddie Mac appears to be the last of three symbolic steps necessary to signal the psychological bottom of the South Florida real estate market.
Expectations are that the Fed’s dramatic actions on Sunday, Sept. 7, will inevitably restore liquidity to the residential financing market now that the U.S. government controls the two largest mortgage companies in the country.
Credit, not ready, willing, and able buyers, had been the biggest obstacle for a well-qualified purchaser with a healthy down payment to complete a real estate transaction.
Immediately following the takeover, interest rates on 30-year conventional fixed mortgages have dropped by about 50 basis points from a close of 6.25 percent on Friday, Sept. 5, the last business day before Fannie Mae and Freddie Mac were seized by the Feds.
This is not to say that the Fed’s action will lead back to the days of 100 percent “no doc” financing anytime soon or cause an immediate strengthening in real estate values, especially in oversupplied market such as Greater Downtown Miami, the Las Vegas Strip, or San Diego’s Gaslamp Quarter.
Instead, prices are expected to begin to stabilize in more and more submarkets besides the most popular and/or mature markets such as South Beach as buyers and borrowers once again have access to credit secured by real estate.
Restoring credit to the housing market was the last factor that some industry watchers have been awaiting since a majority of the construction cranes used to build the new condo towers in places such as Greater Downtown Miami have already come down, which signals the end of new development for several years.
The second contributing factor to the idea of a psychological bottom is the sudden willingness of banks to discount their residential real estate portfolios of both existing loans and bank-owned properties.
The discounts have increased since July when banking regulators began to aggressively seize the institutions with troubled loan portfolio that had been stalling the inevitable as they searched for a solution. Regulators have shut seven institutions since July 11, and 11 for the year.
While the symbolic bottom appears close, the statistical bottom of a particular market will only be reached when there are three consecutive months of increased sales by quantity and three straight months of increased median sales price.
The problem that creates for discount buyers is that real estate pricing is not valuated by the minute like a share in the stock market so the bottom of the housing market will only be defined weeks later once the final data from the previous month can be analyzed.
Peter Zalewski is a principal with the consulting company Condo Vultures® LLC and a licensed real estate broker with Condo Vultures® Realty LLC. Peter can be reached at 305-865-5629 or by email at peter@condovultures.com. Be sure to check out Peter’s blog at CondoDump.com. Don't forget to sign up for our weekly Market Intelligence Report. Looking for a property at a deep discount? You are encouraged to take a peek at the Vultures Database™ .
Copyright © 2008, Condo Vultures® LLC
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