REAL ESTATE OUTLOOK: REAL ESTATE MARKET DEFYING ODDS

The panic and fear that have been shaking Wall Street aren't translating into negative numbers for real estate -- in fact, it's been the reverse.

While the Dow Jones index recently declined a record fourteen hundred points in a matter of days, the latest pending home sales index was moving in the opposite direction -- up strongly to its highest level in more than a year.

Pending sales jumped by 7.4 percent in the latest month, according to the National Association of Realtors. Unit sales in SE Michigan have experienced similar results, according to the Realcomp II MLS.

New loan applications also defied the negative spiral in the stock market: Applications for home purchases to be financed with conventional mortgages jumped by three percent last week, and new FHA applications were up by nearly 10 percent, according to the Mortgage Bankers Association's national survey.

Furthermore, interest rates on 30 and 15 year fixed rate loans have dropped. In sharp contrast to the lack of available credit on Wall Street, mortgage money is quite plentiful due to the federal backing of FHA, Fannie and Freddie.

Why the sharp divergence in performance between residential real estate and Wall Street? One key reason is that real estate -- which helped trigger the financial crisis -- has been undergoing its own correction on pricing and underwriting practices for the past two and a half years. Even longer in our local markets. It's already taken its lumps, and has now reached a point where prices in former boom markets are so affordable that smart buyers are swooping in.

The only time home prices have declined to bargain levels during the past 40 years was during the early 1980’s when credit was tight and interest rates hovered in the high teens. At that time the Home Affordability Index was very unfavorable even with low housing prices. We now see just the opposite – low prices and low interest rates. This market is a buyer’s dream.