Will the sand states take until after 2025 for prices to recover? An article this week thinks so. Also this week, a new trend is emerging in foreclosure notices, concrete evidence that rents have stabilized, and updates on interest rates and mortgage purchase activity. Want more articles like this? Create an account today to get BiggerPocket's best blog articles delivered to your inbox Sign up for free Mortgage Rates Hold at Record Low Freddie Mac’s most recent mortgage interest survey showed that mortgage rates held at a record low at 4.57% on the fixed 30-year loan. The 30-year remained unchanged while the 15-year dropped from 4.07% to 4.06%, a record low. Outlook: Not much news here this week, though something much deeper is happening here. Record low interest rates aren’t affecting people’s buying decision or everyone’s already bought. This means home absorption is slowing which signals a 2nd leg down in home prices. The Buyers Have Disappeared – Mortgage Purchase Applications Hit 14 year low Mortgage purchase application volume dropped another 3.1% for the week, sending the index to its lowest since 1996, according to the Mortgage Bankers’ Association most recent survey. Surprising refinance volume fell 2.9% in the face of continued record low interest rates. Consensus seems to reiterate that the tax-credit borrowed mortgage purchases from future months, leaving a void in home purchasing. Outlook: Psychology of the populace has changed (maybe for a decade or more). Confidence is low and the idea of homeownership may have fundamentally changed forever. Renting is carefree. Consumers are leaving the maintenance and expense to the landlord. Time will tell if this is passing phase but near-term, don’t expect more than slight increases in buying interest. Sand State Home Price Recovery – After 2025? A recent report by Fiserv (the company that works with Case-Shiller) shows that it will take until after 2025 for prices to recover in the many of the “sand states”. This includes; California, Arizona, Nevada, and Florida, primarily. They’re projecting a further 7% decline in home prices through the end of the year followed by a prolonged recovery beginning in early 2011. Chief Economist, David Stiff said the emphasis is on the word, “prolonged”. Outlook: This is close to my March coverage of Standard & Poor’s prediction of a 5-6% decline (prices have actually increased since then so these 2 estimates may be nearly identical). I tend to agree with this statement; however this is a national decline. While some cities and sub-markets will post increases. REO’s Up, but Foreclosures Fall The number of foreclosure notices sent has declined in the most recent quarter according to RealtyTrac, forecasting a longer term decline in foreclosures. Foreclosure filings were down 3% in June from May and down 7% year-over-year. In the meantime REO’s are peaking with 269,962 home seizures in the 2nd quarter, pacing for 1million in 2010. Outlook: While the number of seizures is hitting its peak as banks flush out old inventory, new short sale programs and initiatives to stem foreclosures are causing the notices of default to slow. This is good news as the market will have more time to absorb the existing inventory, while the new pipeline slows down. This may grow the shadow inventory in the short run but could help stabilize prices further. Tipping Point for Rents? Core Rents UP! The Bureau of Labor Statistics reported that while inflation remains in check (many are worried about deflation), we saw an increase in the Owner’s Equivalent Rent index. This is the second indicator in the last 2 weeks showing that rents are stabilizing and showing increases in many markets. Outlook: While the overall trend is down, this recent uptick could signal the bottom for rents and vacancy. While home prices will continue to slide, the demand for premium housing stock will continue to grow. Household formation is continuing to occur though even at a slower pace and the population is growing (net gain of one person every 11 seconds in the US). Prosper by Being Aware We’ve continued to see both bearish and bullish sentiment in the market. The bears are starting to replace the bulls in the housing market with most of the focus on a double-dip. Investors should know that the market has changed fundamentally, maybe forever. But understanding that there are only a handful of states weighing down the larger market should make one confident that a larger recovery is taking shape. Though it won’t happen overnight, opportunities certainly exist for investors in many sectors. Being aware of the macro environment, while knowing the details at the local level, will allow your real estate business to prosper.