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Dave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics.  Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations.  Readers should consult with their own financial advisors before relying on any information contained herein.

Wednesday, February 2, 2011

Continued Troubles for Real Estate

Although there are signs the economy is improving, a significant roadblock appears likely to remain in place for sometime to come. Numerous articles we’ve read lately point to a continued downward trend in home prices. We wrote in a recent blog that you shouldn’t consider buying a new home unless you plan to stay for several years.

On Monday (January 31, 2011) two articles appeared, attesting to the further decline in home process. In an article in the Sarasota Herald Tribune by Jack McCabe, Chief Executive Officer of McCabe Research and Consulting LLC, Mr. McCabe stated that it will be sometime before we can declare that housing prices are going to start going up. He said: “We’re not there yet and won’t be in 2011 or, quite honestly, in the near future.”

While some areas of the country may be experiencing a rebound, Mr. McCabe was talking specifically about Florida. A primary reason for his doom and gloom, as stated in his article is: “According to the Mortgage Bankers Association, the largest wave of highly toxic, negative amortization junk loans to hit first-term rate adjustments occurs in 2011-12, portending an additional wave of distressed properties hitting the market for sale in addition to today’s current inventory.”

According to Mr. McCabe, the median price for a single-family home in Sarasota, Florida dropped from $322,700 in 2005 to $160,100 by the end on 2009. Prices dropped another 1.8 percent in 2010 and Mr. McCabe expects the price to drop another 2 to 3 percent in 2011, with median condominium prices to drop another 5 to 10 percent.

Another article, yesterday day in the Wall Street Journal by Nick Timiraos stated that “housing prices are falling at an accelerating rate in many U.S. cities. While Mr. Timiraos noted that the decline is not universal, he noted that a Wall Street Journal survey found that prices declined in the fourth quarter in all of 28 major metropolitan areas tracked.

What this tells us is that any significant economic recovery will likely be muted by real estate prices. Consumers need to continue to be conservative and concentrate on reducing debt, increasing cash reserves and spending cautiously.

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