Real Estate

Prediction: The bottom of the real estate market

Mortgage foreclosures increased 57% in March 2008 as compared to March 2007. In just a couple months, the final significant wave of adjustable rate mortgages (ARMs) will readjust (in May - June 2008). This will likely be followed by a crest in defaults anywhere from 3 to 6 months after the resets occur as homeowners fail to keep up with their mortgage payments. Foreclosure proceedings will commence almost immediately once defaults begin. Depending on the jurisdiction, the foreclosure process itself can take anywhere from another 3 months to over a year depending on title problems and redemption periods. Finally, zero to three months post-eviction, the real estate owned (REO) property will hit the market.

Assuming that the crest of ARM defaults (once they reach the market) signifies the bottom of the price drops, we can see stabilization sometime during late first to second quarter of 2009. Flat prices will follow for some time as foreclosures will still occur at a high rate on the downward slope. Watch out for residential builders to gradually ramp up construction in late 2009, but this will only stall any price rebound as additional supply hits the market.

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