F. Hill Slowinski, JD
While we consider the results of today’s historic election, just a few thoughts on recent events affecting the real estate market.
In an election year, it seems Washington area buyers and sellers decide to place things on hold until just after the election – and then there is a big jump in activity. We are seeing some of this, and for the most part, buyers are recognizing that now is the time to get IN the market.
- The ‘correction’ in 1987 was followed by much lower interest rates as the economy slowed, and the stock market rebounded by 30% over the following two years, led by housing.
- The market correction is all about uncertainty. Once the rescue bill gets traction and the election results are in, the market will return.
- Two other things significantly dropped recently – did you notice? Oil and the prime interest rate. Oil dropped on “demand” concerns and the Fed lowered the rate it charges banks on overnight loans.
- Mortgage rates are rising right now, but still should be lower. But the price of ten-year Treasury bills dropped. The reason: Treasury is selling an extraordinary amount of treasury bills in its weekly auctions to finance that $700 billion rescue package.
To sell the T-bills, the prices go down (more supply than demand) while the yields go up. Dollars are chasing T-bills versus mortgages due to the huge auction and the return they can bring which makes mortgages less interesting to investors (especially with the risks in the U.S. mortgage market). Mortgages, in a normalized market, should sit about 1.5-2% above the ten-year Treasury. Today they are about 2.5-2.75% above, so rates are in the mid-6% range instead of the high-5%s. We think 30-year fixed rate loans will probably fall below 6% before too long.
We seem to be in a deflationary recession now, which is contrary to what many had thought would happen. Working through this fall and winter, we will emerge next spring with lower rates, a much more stable market, and almost three years of buyers sitting on the sidelines. We think 2009 will better than anyone expects. Buyers will come to buy homes with rates in 5-6% range and in a more stable market. It won’t be like 2005, but it will be better than 2008.
If we are not at the bottom, we are close to it. Over time, real estate is one of the best investments one can make. This is the beginning of the good market ahead.
WC & AN Miller Realtors, A Long & Foster Company
4701 Sangamore Road, Bethesda, Maryland 20816
Cell: 301-452-1409 Direct: 301-320-8430 Ofc: 301-229-4000
Email: hslowinski@longandfoster.com or Hill@HillSlowinski.com
