Berson's Forecasts For Real Estate

David Berson, chief economist for Fannie Mae, gave his midyear teleconference to some Wall Street analysts on July 20th. Here are the highlights of his comments ...

• The Federal Reserve will tighten interest rates by moving up short-term interest this summer. After that, rates are likely to stabilize for awhile.
• Average home price appreciation will drop to 3 percent or less by the end of this year. (Most "experts" project appreciation to average 4 to 6 percent nationally, so Berson is a but more bearish than others.)
• If speculative investors dump rental houses and second homes purchased during the last five years in larger than anticipated numbers, Berson projects price appreciation to fall to 1 to 1-1/2 percent annually -- a level not seen since the recession of the early 1990's.
• In markets where investors accounted for large shares of boom-time property value increases, Berson predicts a good chance for declining property values. San Diego and large parts of California as well as large portions of Florida fall into this category although Berson believes Orlando will be immune from such declines.
• Condominiums are the weakest link in the housing market and the most vulnerable to decline and investor dumping. Significant price corrections could be just over the horizon for condos due to the glut of unsold units, new inventory and apartment conversions.
• Berson does not see a nationwide downturn in property values. Only in markets where speculation was rampant in 2003-2005 and where job and population growth are anemic are there risks of significant declines in value.
• Berson does not anticipate mortgage rates climbing significantly higher than today's rates which historically are on the low side.

Based on these predictions, if I was a seller I'd think very seriously about providing the buyer with wide reaching incentives, including taking back a second mortgage and other kinds of seller-based financing options. I'd also make sure my price was realistic given today's marketplace for real estate, and that my real estate agent was using the very best marketing approaches. If I was a buyer, I'd say that your time has come. It looks like qualified buyers should be able to acquire properties at prices and terms that were unthinkable a year or two ago. It sounds like it will be a good time to be a real estate buyer.

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