Housing Predictions

Predictions for 2007

Using astral time travel I have seen the future.

The current Housing Market Downturn will extend into 2007 as interest rates go up. First we must understand that housing prices were forced up in 2004 & 2005 by speculators whose frantic buying artificially drove up prices an unsustainable 20% or more per year in certain areas. These same speculators are now unloading their properties at bargain basement prices. Also in 2007 higher interest rates will put the damper on new home sales. BUT - this is important. Using astral time travel I have seen that homes far away from major cities got hit hard due to high gas prices. People want an easy commute to work.

Also many areas that are overpriced like Florida and California did NOT have big price drops (Greater than 50%) as predicted. The reason is that many people are leaving the cold Midwest and going to sunny Florida. The reason for this is that the price of propane is sky high over $2/gal. One man in the Midwest was paying $1000/month in heating bills.

This and the nice warm weather of Florida causes many to trek southward, thus they eat up any surplus in the housing market, meanwhile in the Midwest prices go down even though they did not participate in the mega boom of the south. 

It is all supply and demand. Certain parts of Florida and California are hit hard due to an over supply of luxury condos, but affordable townhouses go up in price as well as small single family homes. Only a dramatic increase in foreclosures would force prices lower. Also the unemployment rate going from 4.5% to 5.5% means that fewer people have jobs. In the rust belt states, many companies will continue to shut down their US factories and move them to China. Outsourcing to low labor cost countries like India will also have an impact on housing demand.

Still, I predicted that the housing bubble would burst sending prices down. The debunkers who laughed at me then are now saying it was "obvious" and that I get all my predictions from CNN. Well, CNN is predicting a 10% decline in house prices in Florida in 2008 due to a slowing economy.

Back as early as 2004, and again in 2005 I was telling people to sell, that the bubble would burst. Now it is hard to sell and houses sit empty on the market for a long time, what is worse is that interest rates are going up and inflation is going up. Also many banks have failed and those surviving are raising interest rates. Try to lock in low rates if you can as they will not stay low for long. Posh homes will sit empty as the economy contracts due to high oil prices, but small energy efficient homes will do well.

BUT - the most important thing is location, location, location, with gasoline going up in 2007 you want a house close to the city where the jobs are. A long commute will kill your resale price because people want to buy close to downtown.

Also big houses cost a lot to heat in the winter so people are buying smaller homes now. A big old drafty house is a killer now - THINK SUV. Try to update the insulation as a prospective buyer might ask you for your heating bills. The price of propane that is tied to the price of oil goes up a lot in the next few years. Rather than tell you what the average price of a house is in California in Dec 2007, I will tell you that certain parts of California go up in price in 2007. A slowing economy in 2008 means few home sales so the idea of wait is foolish as inflation will eat up the gains you made in 2004 and 2005. While a house may seem to go up in price, in real dollars adjusted for inflation many houses actually go down in price.
Right now the median price for a house in Houston, TX is about 150K that is quite low and the Texas economy will do quite well in the next few years. In contrast a house in Miami is about twice that and in LA three times that.

One thing that I noticed in Miami was that roomy megamansions costing 1.5 million were cut to $895,000, but the small affordable $300,000 houses were up to $340,000 last year. There is still some demand for affordable houses, but banks are asking for 30% down payments.

As a result of the glut of new luxury construction, prices in upscale Naples, Florida fell 38% last year. This dramatic drop in price was not anticipated by many banks which often made 100% loans and are now left holding the bag. Many big beautiful houses now sit empty with overgrown lawns. These homes are victims of a fickle real estate market.

Some people say that the market will recover by 2009, but I believe that in many places in the US real estate prices will continue to move down as more and more properties face foreclosure. That banks now have a huge inventory of foreclosed houses that are sitting empty and rotting away. Many of these houses will be thrown on an already depressed market driving the price down even further.

I predict a sluggish single digit price increase for many markets and a decrease in Price Volatility in the next few years, but no catastrophic collapse in price (greater than 50%) in California or Florida due to the influx of people into these very desirable markets. A steady flow of people out of undesirable rust belt areas has caused houses in Detroit to average under 30K each in foreclosures, that's less than a car.

So, in conclusion, my prediction for housing prices is small declines and increases in many areas, with a few bright spots, but nowhere in the US do I see the massive dramatic gains in price that were common a few years ago.

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