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Wednesday, November 05, 2008

Where is the bottom of the housing downturn?

Foreclosures and distressed properties dominate market - that was a headline on CNBC this afternoon. Duh! This is not news but rather a continuing saga. Sort of like listening to a speech that just will not end.

But, just like that long drawn out speech, it will end. How soon? That depends on several factors. Buyers are hesitant to buy now. They are afraid the prices will continue to drop. How low can prices go?

There is a real bottom to the new house market. Builders have fixed costs. The total cost of construction has a floor. Materials, land, labor and business cost create a price point where a builder has a bottom line. Factor in some profit (builders can't break even!) and you have a bottom price for new construction.

I do not believe these distressed properties have the same bottom. After all, a lender is not in the real estate business of holding properties. Perhaps the lenders can create these massive property management organizations and rent out all these bank owned properties? Of course that does not make sense to me. Lenders do not want to own residential real estate.

So, where is the bottom for resales? I think that will be set, neighborhood by neighborhood by the distressed property market. As long as there are short sales and foreclosures in a neighborhood, the prices will be forced downward. In neighborhoods with little or no distressed properties, the prices may bottom sooner.

Holding out for the lowest price is guess work. What will a seller accept? You never know as every seller is different. So where is the bottom of the market?
No one knows...

Gary Waters, Florida licensed real estate agent, Century 21 Baytree Realty, Rockledge, Florida.

Opionions expressed in this blog are those of the author.

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