Tom Bernardo's Blog

Prediction Number 1:

Jon and Kate Gosselin(sic) will help start the real estate turnaround by being directly accountable for at least 5 sales. (I never watched the show but it was all the Buzz). Jon and Kate are getting a divorce so their reality show got cancelled, they will have to sell the happy marital home that helped bring them fame, and they will each buy a new home! Their attorneys will each get a new house too so that makes 5 transactions.

Most  of my predictions will be serious…read on.

Prediction Number 2:

Mortgage  defaults will likely increase in 2010. Too many Option Arm loans  are resetting, too many borrowers are opting for strategic default, and unemployment has not peaked yet.

Prediction 3:

Distress will not go away, but there should be some changes in how banks handle them. Specifically, it is safe to assume banks will lead with altering mortgages rather than foreclosures as their first choice. The problems is, a loan modification just doesn’t look that good to the borrower based on the terms the banks are offering, and many of the modified loans end up in defualt in the next 6 months. When loan modifications fail, I expect the lenders to take a proactive role in short sales in order to avoid both the cost and outcome of ownership that comes with foreclosure.

Prediction 4:

At some point, it may be later in the year or perhaps into early 2011, but there will be competition for borrowed money. As that happens, interest rates go up. The borrowed money encompasses unsecured credit as well as mortgages. I have heard 5.8 to 6.0 percent by this time next year. The bad news really is if it doesn’t go up…that means the economy has remained stagnant or gotten worse, and there is no growth (which usually  gets financed)  going on.

I have heard all sorts of terrible predictions about how hard it will be for people to buy houses, cars, and other durable goods if rates go up. I purchased my first home at about 18% interest when I was 25 years old. I was betting that things were so good in the general economy that  my income would go up enough to make that rate affordable. That’s exactly how it panned out. So, I really don’t expect mortgaged sales to go down significantly unless it becomes cheaper to rent and property values are not increasing at the same time.

The following is based on the fact that real estate is a long term investment. If you don’t follow that line of thinking you will have to  believe that you are smarter than the market and can  time it to win. If you can, I would be happy to help you with the paperwork.

Prediction 5: Homes $100k or less

Entry level houses are the best investment out there. If you are renting, you should be buying. If you are building a portfolio of real estate, you should be buying. The reason is, there was a time when a basic house was selling in the 40′s. They are now moving back up and are still less than what it would cost to build it even if you already owned the land. Expect it to bounce along the bottom for a couple of years, but they won’t be going significantly lower. Also if you invest, plan on some rental vacancy.

Prediction 6: Homes $175k to $375k

The outlook in this range is  not quite so rosy. We sold a little over half of the homes that came on the market in this range. Another way to look at it is they are coming on the market almost twice as fast as we are selling them. Considering my original comments about more inventory coming, prices will have to adjust in this range before we see a light at the end of the tunnel.

Prediction 7: Gulf Access Waterfront Properties

These houses dipped below $200k early last year. Those are gone. Even if you see it listed below $200k, it will likely sell for more. We literally sold as many houses in this price range as we listed. Since there is only X amount of waterfront, there is a limit to the inventory. I expect these are finished correcting and showing signs of going the other way. Don’t expect to retire on appreciation of properties in the next year, but they will go up before other product classes.

 Prediction 8:

Tiger Woods will divorce. In the future he will avoid marriage and just buy some lady a house every 5 years.  

Prediction 9: Luxury Class Properties over $750k.

These could be mansions or Gulf Front bungelows. This product class has seen the least amount of activity in the past year. By rights they should, simply due to price, but their activity was abysmal so it goes beyond simply price, and still needs correction. Over 80% of the houses listed in 2009 in this class didn’t sell.

Earlier in the year I made a statement that if it wasn’t priced at or before the prices in 2002 then it wasn’t going to sell and that statement prevailed in all price levels. I stand by that and the owners and agents in this class have not met the requirements to get the Buyers off the fenses. We will see more success in that strategy as the year goes on. Sellers in this price range will either feel the pinch of Option Arms resetting, or, they can take the credit hit of short selling because they are wealthy, or even if they own it free and clear there will be some realization that it was a bad investment and owners can think of other things to do with the money if they sell.

Prediction 10: A Return to the Good Old Days

Somewhere, someone got the notion that 75% of the people should own houses. It wasn’t happening so we started making mortgages easy to get to facilitate that. We actually called them “Liar Loans”.   Banking also used low interest to entice sales and future adjustments to get some of their money back, Option Arms. So, you lie, then you buy, the payment was low enough that you could afford it, even with mortgage insurance. Lots of houses got built due to the demand created by these incentives.

When it came time to sell, at a profit of course, there were no more Buyers left. That brings us to today. Homeowners, realtors, banks, and mortgage insurance companies, builders, title companies  have all taken a terrible beating. Most sales are now adversarial, not much trust left, and it is not a pretty way to find a new home or  sell your old one. Banks, brokerages, title companies have folded.

I expect private mortgage insurance to be a thing of the past. If you don’t have 20% down, you go FHA or no deal. Believe it or not, that’s the way it was in the good old days.

I will  do my part to make transactions more civil, friendly, and perhaps just like the old days, a closing may become enjoyable again. It won’t happen as long as a closing represents shattered dreams, but I will do my best to make it as painless as possible.

As always, if there is someone you know, here or anywhere, that has a real estate concern, please show them you care by putting me in touch with them.   In return, I will show them you care by treating them the way I would treat you.  

If you have a comment or question on this or any real estate topic, please don™t hesitate to let me know. I can be reached at tombernardo@earthlink.net, or 239-425-4900.

My warmest regards,

Tom Bernardo, GRI, Realtor

Keller Williams World Class Realty

www.FtMyersDreamHomes.com