Market outlook: Banking on Bernanke

by Dan Krell (c) 2009.

Confused about where the real estate market is headed? So are the pros. Realistically, the outlook for the housing market depends upon your perspective.

If you are a home owner, the almost 30% reduction in home inventory since last spring is certainly welcome news; the idea of less competition makes home sellers more optimistic about their homes actually selling. However, because they would be upside down (owe more than the sale price) if they were to sell today, many homeowners continue to wait for a more favorable market. Believe it or not, some home buyers have been turned off by bidding wars sparked by the reduced inventories of many low priced distressed homes for sale.

If you are a home buyer, reports of reduced home prices as reported by the increasing Home Affordability Index (HAI) is also good news. The HAI was 166.8 in January- an all time high (the higher the index, the greater the affordability)! Lower home prices combined with low mortgage interest rates make the current housing market the most affordable since the National Association of Realtors began tracking housing affordability in 1970 (

Although optimists look forward to increased sales in the third and fourth quarter of 2009 due to pent up demand, the future may depend on other mitigating factors as well. Concerns of further sliding home prices and the state of the overall economy have had many potential home buyers keep their wait and see attitude. This sentiment was expressed during the January meeting of the Federal Open Market Committee (, where reports of further concerns of devaluation in the housing market were discussed.

Additionally, many real estate industry insiders are concerned with the new Administration’s budget reducing mortgage interest tax deductions and increased home sale capital gains taxes (which some call an attack on homeownership). Even the ever optimistic Lawrence Yun, NAR Chief Economist, expressed concerns about the Obama’s administration’s move to restrict and lower some of the tax benefits of homeownership

Peter Hong of the Los Angeles Times (March 14, 2009: Plan to cut mortgage interest deduction stirs opposition) reported Yun to say that although the reduced mortgage interest deduction is aimed at two percent of all households, all home owners will be affected. Critics of the Administration’s new tax policies point to lower home prices in the “upper tier” sector, which will affect surrounding market areas and subsequently drive down home prices further in all sectors of the housing market.

Some are concerned about increasing mortgage interest rates due to impending inflation as a consequence of increased government spending. However, some economists point out that inflation fears are overstated because low consumer demand will keep inflation at bay.

Finally, it must be stated that Federal Reserve Chairman Ben Bernanke discussed optimism for the American economy during a recent interview with “60 Minutes” (as reported by Fox News on March 15th). He stated that a recovery could begin as early as next year if banks are stabilized. If what Dr. Bernanke stated comes to fruition, and if the HAI and interest rates remain low, then it is possible that we could see home sales modestly increase by the fourth quarter of this year and rise significantly by spring of 2010.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of March 16, 2009. Copyright © 2009 Dan Krell