by Jim Cramer, Director of Sales

As a real estate professional and former executive for one of the largest homebuilders in the Midwest, people often ask for my opinion on the “housing bubble” and how we ended up where we are today.

My belief is that our current conditions are the result of increased demand driving home prices higher, and the inflated sales prices leading builders to increase production. These trends continued to feed off of one another until the realities of the market could no longer sustain them—especially coupled with the prices paid for land and the collapse of the credit markets in 2008. I witnessed this directly as senior executive for homebuilders in Ohio and Indiana during the peak of the housing boom.

Now, the bubble has burst, leaving the residential building industry with a critical slowdown in sales and construction. The large accumulated inventory of unsold homes and homesites is now the biggest hurdle toward restoring balance in the marketplace, a situation where the pace of construction is more in tune with long-term trends in demand.  Simply put, lending requirements allowed builders to sell their 2007-2008 future customers a home in 2004-2006!  This situation has created a bonus for today’s purchasers.

The Bubble by the Numbers
The factors stimulating the excess demand have been well documented: historically low interest rates, loose lending standards, rapidly rising house values, and the invasion of investors and speculators. These factors created a surge in sales, increasing the number of excess vacant units by an estimated 1.1 to 2.3 million homes by the first quarter of 2008.

According to “The Housing Price Index Report” released by the Federal Housing Finance Agency on January 22, 2009:

• November 2008 prices were significantly in line with prices in March 2005.
• The mid-Atlantic region experienced average price declines in 2008 of -4.2% as compared to the south Atlantic of -11.5%. 
• The Pacific region is by far the worst, at -22.1%. 
• Nationwide, home prices are down 20% from their peak in July 2006, according to the S&P/Case-Shiller home price index.

 
We are fortunate in Bay Creek and the eastern Shore that real estate values do not follow wild swings up and down.  Your value is somewhat protected. National prices are approaching levels from the late 1990’s, adjusted for changes in mortgage interest rates and income growth. The dynamics depend on key drivers of housing demand: properly functioning credit markets, appropriate mortgage lending standards, home and homesite prices, general economic conditions and consumer confidence. 

Lawrence Yun, Chief Economist of the National Association of Realtors, says he expects prices to rise 2.8% in 2009 disagreeing with Patrick Newport of economic forecasting firm Global Insight who projects a 15% drop.  Economist Nouriel Roubini of New York University, who is best known for predicting the bubble bursting and credit crisis, believes we are in for another decline this year. 

The recent study by the National Association of Home Builders (NAHB) points toward the need for 1.9 to 2.0 million housing units per year — composed of 1.5 million single family units and between 350 and 400 thousand multifamily units. NAHB’s long-term forecast calls for housing production to achieve these levels by 2012, following several years of methodical recovery from the trough of the current housing cycle. This means returning to roughly 2006 levels in 2012.

In summary, builders are anxious to build new homes, their trade partners are offering values never before seen.  Major manufacturers and suppliers of lumber, concrete, flooring, paint, cabinets, appliances, HVAC equipment, plumbing supplies, light fixtures and energy efficiency control equipment are all offering materials at fabulous values.   The advantage of a new home is you get it “your way.”  To your personal tastes and wishes. 

Interest rates at Bay Creek for construction to perm loans are near all time lows.  The developer is subordinating 20% of lot loans at 3% interest and no payments for 36 months on the second. Bayside Village homesites come with a sports membership, no dues for 24 months and no property association fees for 24 months.  There is also a $5,000 marina boat slip credit available. free dues for  Market homes are available for immediate vacation use.  Condos are available for personalization and quick move-in, but you still can select your flooring colors, countertop materials, cabinets style, paint colors, etc.  Baymark is offering to subordinate 20% of the purchase price of a new condominium with an interest rate of 3% and no payments for 36 months on the second. The two signature golf courses are being maintained to the highest standards and the private beach is the perfect setting for a wine and cheese romantic gathering.  Now is the time to explore the benefits of ownership at Bay Creek.

Bay Creek has two challenging and beautiful golf courses.  It’s a perfect venue for tournament golf.  For 2009, Bay Creek will host the Old Dominion Athletic Conference Men’s Championship, the Tidewater Amateur Tour, the Executive Women’s Golf Association, the Golf Channel Amateur Tour, the Bay Creek Amateur, the Virginia State Golf Association and the Eastern Shore Golf Amateur Tournament of Champions.  For 2010, Bay Creek has already been chosen by the VSGA to host the prestigious Virginia/West Virginia Team matches. 

Do you enjoy competing in events?

The 2009 market has become a prime landscape for home buying.  Builders, faced with excess inventory, are dropping prices, and with a combination of low lending rates and flexible financing options, current conditions create an optimal buyers market.  Buyers can now find luxury homes in hot spots like Eastern Shore real estate at affordable prices.  Still thinking about that vacation home? For those that are interested but hesitant because of the current economic outlook the time to act is now because, according to real estate experts, the market is expected to recover soon, causing prices to rise back up.

Excess Inventory
According to market expert Matt Car’s recent article on realtytimes.com, home prices in 381 U.S. metropolitan areas have dropped at an average of 25 percent. Builders and developers are battling excess inventory and are using aggressive pricing in order to spark demand. Because of this, it is now easier than ever for home buyers to find great deals on second homes. On top of that, builders are also throwing in extra incentives that second home buyers can take advantage of to earn extra dollars in additional savings. 

Financing
There are currently low rates and flexible financing options for second home buyers that have good credit. The pull of the economy has tightened lending requirements for financing, but on the upside a recent real estate outlook on realtytimes.com marked qualified buyers getting an A.P.R. as low as 4.99% for 30-year fixed rates and 4.7% for fixed rate 15 year loans.  Financial intermediaries are also offering favorable financing options including interim financing, which gives short term loans to buyers who can use it to gain time until market conditions to improve. Lending rates and financing options allow buyers to get the adequate funds they need to make a long term investment, like a second home, in an unsteady market.

Market Recovery
Experts are predicting the market to recover soon, so it is important to act now before the prices begin to rise.  A report by Moody’s Economy predicts that housing prices are expected to bottom out by the end of this year.  The market is expected to then recover due to competitive pricing and policy measures that will keep interest rates down to increase demand.  This, in turn, will ultimately stabilize prices. The current real estate outlook on realtytimes.com already shows an increase in demand with applications for new mortgages recently up by 48% and applications for conventional loans up by 11%. 

Real Estate Hot Spots
Affluent residents from all around have looked to Eastern Shore real estate as a hot spot for finding luxury second homes at affordable prices.  There are thousands of homes to choose from, ranging from resort-style, gated and golf communities, to bayside condo’s and beach houses.  For someone who has means, taking advantage of the buyers market and finding a second home in a premier location is a great investment idea when the market recovers.