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Can you benefit if housing experiences a double dip?

by Peter Miller http://blog.hsh.com/index.php/2011/04/can-you-benefit-if-housing-experiences-a-double-dip/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+hsh+%28blog.hsh.com%29

Mortgage rates change every day, but as a borrower you have to keep an eye on events down the road. The penalty for not looking ahead could be far-higher costs or even foreclosure and/or bankruptcy.

The obvious problem with looking ahead is that nobody actually has the ability to see into the future. Nevertheless, such a handicap does not prevent economists from telling us what will happen next. All of which brings us to a survey by MacroMarkets LLC and its March 2011 Home Price Expectations Survey

The survey asked 111 “economists, real estate experts, investment and market strategists” where real estate is headed during the next few years.

“Overall,” said Robert Shiller, MacroMarkets co-founder and chief economist, “the sentiment among our expert panel regarding the U.S. housing market outlook continues to deteriorate. Now they are expecting only a weak recovery, and even that is not until 2013. This uninspiring view must be influenced by the persistently weak market fundamentals – high unemployment, supply overhang, an unabated foreclosure crisis, and constrained mortgage credit.”

Some panelists, said Shiller, “see a real recovery, predicting prices up 20% or so by 2015. The differences of opinion are interesting but unsurprising in light of continuing and unprecedented fallout from the historic bubble.”

HSH.com: “Home equity: Why 2015 is the new zero”

Changing views

You would expect diverging opinions among any group trying to predict the future; what is perhaps most interesting is the speed with which views are changing.

“Many more experts are now projecting a double-dip after witnessing the double-dead cat bounce that came in the wake of expired government stimulus programs,” said Terry Loebs, MacroMarkets managing director.

“In December, only 15% of our panelists were projecting that a new post-crash low would materialize for national home prices. Now, just three months later, almost 50% foresee a double-dip happening this year, and not a single panelist expects national home prices to recover to the pre-bubble trend in the coming 5 years.”

Reality

I read these projections and my thought is different. For much of America there is no double dip. There is no dip at all. There is merely a slide, a downside, a financial slalom. The real question is how much can I afford now and in the future.

Whether you think of it as a dip, a double dip, a dippity-dip-dip or whatever, the reality is that current mortgage rates are near historic lows in part because there’s little energy in the housing sector. We don’t know what will happen in the future, but we do know this: If you’re in the market to finance or refinance, and if you expect to keep your loan for more than a few years, now would likely be an opportunistic time to get a fixed-rate mortgage.

If the marketplace improves — if it “un-dips” — then there will be more demand for mortgage money and mortgage rates will likely rise. If that turns out to be correct, then would today not be a good time to lock in rates and terms with a fixed rate mortgage? A fixed-rate loan would be a hedge against higher future costs. Alternatively, if you have an adjustable rate mortgage you might face significantly higher monthly expenses in the future, costs which could capsize household finances.