Sunday, February 18, 2007

Bernanke: Real Estate Hasn't Hurt Economy

Federal Reserve Chairman Ben Bernanke on Wednesday provided his latest insights into the housing market as he addressed the Senate Banking, Housing and Urban Affairs Committee.
Although the topic of conversation was focused on the Fed's semiannual monetary policy report, he touched on real estate often. Here's what he had to say:
  • Housing slowdown hasn't hurt the economy: “The U.S. economy appears to be making a transition from the rapid rate of expansion experienced over the preceding several years to a more sustainable average pace of growth. The principal source of the ongoing moderation has been a substantial cooling in the housing market, which has led to a marked slowdown in the pace of residential construction. However, the weakness in housing market activity and the slower appreciation of house prices do not seem to have spilled over to any significant extent to other sectors of the economy.”
  • Rents to increase moderately: “The faster pace of rent increases last year may have been attributable in part to the reduced affordability of owner-occupied housing, which led to a greater demand for rental housing. Rents should rise somewhat less quickly this year and next, reflecting recovering demand for owner-occupied housing as well as increases in the supply of rental units. But the extent and pace of that adjustment are not yet clear.”
  • Lenders should consider risk of payment shock: “Just to note one action we've taken recently, along with the other federal banking agencies, we've issued guidance on nontraditional mortgages, mortgages that involve interest-only or option ARMs that may not be amortizing mortgages. And we've emphasized to the lenders that they should be, first, very careful in their underwriting. That is, they should ensure that the borrower is equipped to deal with payment shock, if interest rates go up; that they have sufficient income to meet higher payments. And secondly, that disclosures are adequate, so that the borrowers are fully informed about the nature of the contract that they're getting involved in.”
  • Inventory to normalize in 2008. “The predicate is that we have seen what we think or what we call tentative signs of stabilization in demand for housing. If, in fact, the demand for housing is stabilizing – and, again, we won't know that for sure, I think, until we see sales figures in the spring – then we should see from here a gradual decline in the months for sale inventory. The normal is, at least for the last eight to 10 years, four-and-a-half months of homes for sale. And my anticipation would be that we would get back toward that general level by the end of [2008] assuming that demand stabilizes.”
Source: Dow Jones Business News (02/14/2007)

Richard's notes.... The market will continue to stabalize as long as rates continue to hover at their current levels. If you have been waiting to purchase a home, you will see that there is more inventory to choose from and also sellers are willing to negotiate with you to a certain extent. If your intention is to lowball, you'll find yourself in a position where your offer will be rejected.

To search for available homes in the San Fernando Valley & Santa Clarita Valley, visit: http://www.homes.la

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