My Mortgage Blog

I think there are a few things we all should be discussing these days, because they run against the commonly-held gloom about the future of the real estate market. Indeed, they could bring on a number of significant opportunities for us all. Or, like so much in the dusty pastures of the recent past, they could prove to be green shoots that soon turn brown. Still, I think they are worth watching.

First, there seems to be a quiet growth in real estate transactions that may become sustainable in a short period of time. The number of mortgage applications for the week ending December 2 surged ahead to wipe out the losses in the prior week (which were largely brought on primarily by temporary worries about rising rates).

It’s rather remarkable: The number of refi applications had fallen 15.3% the prior week, and this past week it rose by the very same 15.3%, as if to tell us it’s time to move on. The important point here, though, is that purchase money loan applications rose by 8.3%, having fallen by only 0.8% the week before. This suggests a strengthening home sale market.

So do things like housing starts figures, which we’ll soon get, along with existing home sales. But it is new-home construction and sales figures that most intrigue me here. We are working with a positive recent pending home sales index, which should mean growing numbers of completed sales in the coming weeks and months. And there are other positive factors—an improving unemployment insurance claims figure (well below 400,000) that should stimulate greater confidence among sidelined homebuyers.

Second, then, there may be a series of unexpected changes in the overall real estate market. We are and have been for a long time in a time when—especially due to foreclosures—the cost of building or replacing a home exceeds the cost of purchasing a comparable existing home. This forces existing home prices to reach their cellar floor…and we are arguably just about there. At the same time, this forces new home builders to get very creative, very practical, very modern. (Those new home builders who are still putting up McMansions and 1960s-style ranch homes are wasting their time. There is simply no way to make a buck from the building of such homes today.)

But new-home builders have the benefit of a great many new technological and stylistic changes that are increasingly attractive to potential homebuyers and expensive for existing home sellers to provide. Thus, watch for innovation to be the watchword among new-home builders—smaller homes, better use of space, vastly better energy efficiency, much lower cost of operation, etc. We are likely to see, broadly speaking, a new class of homes on the landscape (if we don’t see them already).

At the same time, we are likely to see the function of real estate agents go through some changes, as real estate professionals help more and more homeowners arrange transactions in which current homes are turned into rentals that cover their expenses of operation and owners buy or rent in another area. There is simply no way for ailing refi and bring-homes-up-from-underwater governmental programs to handle the problems and needs presented by people simply living their lives, moving because of jobs and family and births and deaths, etc. A new mode of handling one’s homes must be developed efficiently. Probably not by the government.

And I suspect financing will go through meaningful changes as buyers tire of waiting in line through an agonizingly uncertain mortgage process. The changes will be more bottom-up than top-down, I think, and the Too-Big-To-Fails will need to be light on their feet and open to change. There’s a fantastic opportunity for smaller lenders in this, I believe.

It may just be one of the most exciting real estate seasons any of us have experienced in our lifetimes—and I, believe me, have been through many of them.