Catching up over the past 18 months

Well, I'm ashamed to admit that it's almost 18 months since I last posted to my blog, but I am committed to making up for that with regular posts from here on to inform readers about the local market in and around Warren County, Virginia, and other local and real estate issues.

So to start to catch up, I looked back to where we were in August 2007 when I last posted. Wow! what a dramatic sea-change we have seen. Where were we then? In contrast to what many of my colleagues and the media in general were saying at the time, I was stressing how the market was drying up. I was quoting 40 to 55 sales per month (down 50% from peak) in Warren County, and a 12 month supply of homes. We had just begun to see the initial "credit crisis" with problems with some mortgage lenders, but little did any of us anticipate what was yet to come.

Since then, the housing market has steadily dwindled, and more rapidly so over the past 9 months or so. Front Royal/Warren County has for some time been seeing only 25 to 35 home sales per month, with an overall supply of about 18 months. Half of those sales are typically foreclosures, with a lot more being "short sales" where the bank is losing money and cooperating with a voluntary sale by the owner without foreclosing.

The backdrop to all this has been the implosion of the "sub-prime" mortgage market, leading to problems with securitization of mortgages in the secondary market. The tightening of credit, and subsequently the illiquidity and failure of several financial institutions, has led to a global economic crisis which governments around the world are fighting to underpin, with far reaching support and stimulus packages (such as the "TARP" in the US) including huge national investments in banks. At the same time, a few weeks ago it was confirmed what anyone already knew unless they were in denial - that the USA was in a recession which had officially started in December 2007.

The fallout from all this has been a rapid decline in consumer confidence, with increasing job losses as employers pare their costs to meet falling demand, and a fear of the widespread talk of a another depression like the 1930's.

House prices in this area (those that sell, not the "hopes and aspirations" of some of the asking prices) are now back close to 2003 levels, and with interest rates at record lows, there are some great opportunities for qualified buyers. Of course the opposite can be said for sellers - the chances are that anyone who bought a home from late 2003 onwards with 100% or near-100% finance, or who refinanced a substantial part of their equity since then, is unable to sell that home and clear their mortgage from the net proceeds.

The past 18 months has seen a dramatic and traumatic turnaround in fortunes. In my coming posts, I will try to make a little more sense of how it impacts the housing market locally.