Don’t let current positive market conditions lull you into a false sense of security. While Fulton Research called “the beginning to the bottom” of the Washington area housing market in April 2009, that statement came with a few qualifiers that may have been overlooked. There is a minefield of economic problems ahead of us which we have to maneuver and we run the risk of a third leg to this downturn to begin later this year. What are those problems?
- Rising unemployment into 2010 will result in declining housing demand.
- Alt-A and Option-ARM mortgages resetting this year, resulting in many high end properties hitting the foreclosure markets.
- There is a real threat of inflation, and skyrocketing interest rates, in 2010 and beyond.
- Commercial real estate industry has a mortgage mess to deal with. Many commercial loans are maturing this year and many will default as the credit markets are still frozen. Those initial loans were made with aggressive underwriting, and now the pendulum has swung the other way. Some analysts predict that commercial real estate values may drop as much as 30 percent.
The housing activity we’re seeing today is largely government-manufactured, with low interest rates, tax credits and other stimulus. Fulton Research analysts continue to look past the manufactured demand to see what the real economy has in store.
