Today's Housing Market Is a Real Fixer-Upper

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3. 2008 Outlook

Most statistical indicators show 2008 won't likely be much better.

"I am not really excited about the outlook. Not until late '08 or '09 at the earliest," Goodkin says. "And even then, when the real estate market does come back, it won't be where it left off. We will probably be looking at a landscape that is 30 percent or more below its peak of '05."

Yun says he sees at least stabilization on the horizon.

"I don't see sales falling much from this point," he says.

He says most subprime mortgages have already left the market either through foreclosure or through quick sales, and he says a stimulus package on its way from Congress has the potential to give housing a bump. Plus, Yun says, a renewed interest in loans insured by the Federal Housing Administration will likely give lower-income buyers and people with dinged-up credit a way to buy in to the market.

Goodkin isn't as optimistic. "I would bet that 'more of the same' is perhaps an understatement. Things could even worsen," he says.

Simonson agrees that a bottom to the market isn't on the immediate horizon. "My gut says no. I don't see any catalysts for a reversal in the market," he says. "Interest rates can't go lower. Credit markets won't open up in any big way. We are looking at a questionable economy rather than looking at coming out of an economic slump."

4. When Will It Turn?

"It was a hell of a ride on the way up, and it will be a hell of a ride coming back down," Seiders says.

In its latest analysis, the NAR predicts another 5 percent drop in home prices by the end of the year. The Realtors see an even bleaker picture for new home prices, predicting an 18 percent price loss for 2008.

"The numbers for new homes are down more than 50 percent from their high two years ago, and that needs to decline even \further," Yun says. "We already have a high inventory, and the last thing we need is to add on more inventory."

Most analysts agree with the general assessment that 2008 will be another year to see falling prices.

"We expect prices will decline, possibly even into 2010," Porter says. "We already have seen new home prices fall much more rapidly because builders need them off their books and they have deeper pockets and can afford to write it off."

He says the downturn may take longer on the homeowner side, though.

"Homeowners aren't quite ready to give up the equity they believe they have," he says. "They know the home down the road sold for $400,000 a year ago, and they can't adjust to the idea that they can't get the same thing for their home today."

"One thing about pricing is there is so much local variation," Yun says. "The national number may not be as hopeful as the local markets, where there are some relatively strong markets still."

He says that while some California and Florida markets did see huge declines, along with many of the markets in the industrial Midwest, such as Detroit and Cleveland, there were some bright spots, such as in Texas and the Rocky Mountain states.

5. The Doughnut Effect

Even in markets with highly publicized losses, prices didn't fall in any uniform way.

"There are places where the local economy was strong, investment was strong, immigration was good, and all that came together to hold up the market in some places you might be surprised about," says Simonsen.

He says places like Manhattan and San Francisco actually had respectable years.

"The weak dollar brought European investors and buyers in, which are holding that market up just fine," he says. Demand held the market up more than people expected in the core, high-end city centers and prices held strong.

Simonsen says that story repeats itself in many of the major metropolitan areas, largely a result of the increased inventory: With so many houses for sale, buyers who were able to get financing had their pick of the market.

And with the entire city available at reasonable prices, most people chose the areas that had been historically most desirable. "There have been two different markets," he says. "There was enough inventory in those nice parts of town, that every other part of town ended up doing poorly while the attractive areas stayed strong."

And not even the tight credit markets took their toll on these areas, yet. "You don't buy a $4-million home with a subprime loan," Simonsen says.

But that strength may not hold up through the end of the year, he warns, "We expect an oncoming recession by the end of the year, and with people worried about their jobs, even the high end will weaken," he says.

6. The Bright Side

One of the few groups who actually benefit from the morbid real estate market is buyers who have relatively strong credit.

"It is absolutely a buyer's market," Goodkin says. No, the market hasn't bottomed out, he says, but buyers who do their homework and study their market will find terrific values. "As long as you are buying the house as a primary residence, and you are selective, there are good values out there and you won't get hurt," Goodkin says.

Some economists are holding out hope that once people start buying, they will begin a chain reaction that will help buoy the market. One indicator that shows they may be on to something is a survey NAR did polling sellers with homes on the market.

"The interesting thing is that 80 percent of those people told us that they want to buy as soon as they sell," Yun says.

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