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Home arrow News arrow Players Adapting as US Real Estate is Softening
Players Adapting as US Real Estate is Softening Print E-mail
Monday, 07 August 2006
One of the few immutable laws of economics is that ''unsustainable trends eventually come to an end, said David Berson, chief economist for mortgage giant Fannie Mae, put it this way.

Ben Bernanke, chairman of the Federal Reserve, was more opaque. In congressional testimony, he said that the downturn in the housing market so far appears to be orderly.

Bernanke managed to simultaneously soothe and unsettle his rapt listeners. Berson thinks the Federal Reserve ''is not done tightening'' the ratchet on interest rates, and will move up short-term rates once again this month. After that, rates are likely to stabilize, bringing at least a temporary cessation to rising home mortgage rates.

If the nvestors who are speculative would dump rental houses and second homes purchased during the boom years onto the market later in larger than expected numbers, Berson believes price appreciation could drop to a 1 or 1.5 percent annual rate. This is a level not seen since the recession years of the early 1990s.

Berson believes ''there is a good chance of declines'' in average home values in a handful of markets where investors accounted for large shares of boom-time property purchases and where price increases soared for years. Just like what other analysts believe, Berson sees the weakest link in the housing market and the most vulnerable to price declines and investor dumping is the condominium sector. Many markets are glutted with unsold inventories of new and converted condo units already, and Berson is concerned that significant price corrections could be just over the horizon.

It shows that neither Berson nor Bernanke foresees widespread property value declines as part of the current down cycle. Neither anticipates mortgage rates to rise significantly higher than today's rates, which are still on the low side by historical standards. As long as financing is available and affordable, buyers will find ways to purchase houses.

A flattening market means changing one's tactics for all-weather real estate players, not burrowing away to hibernate until the market warms up. For buyers, down markets often offer exceptional opportunities to acquire real estate at prices and on terms that were unthinkable just a few years before. Buyers need to adapt to the changed market conditions.

By M. Sese

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