As 2007 comes to an end, many investors, home owners, and creditors in the US are hoping for a strong turnaround in housing and mortgages for 2008.  While there are still opportunities for the markets to extend their slumps into the New Year, there are some signs of hope and some reasons to believe the markets could be finding their footing.

Recent reports from RealtyTrac showed that US foreclosures fell 10% during November, a good sign.  The US government has taken many strong measures to try to bail out struggling sub-prime borrowers, including the freeze rate plan to protect on-time loan payers from dramatic jumps in mortgage rates set to come soon.  Three straight rate cuts by the Fed lowered the Fed fund rate one percent to 4.25% over the last quarter of the year.

Recently, some economists and financial experts have suggested that foreign investment in the US housing market may help provide a short-term boost.  Rock bottom prices in many US home markets, low dollar value, and high housing rates in some European countries and other markets, has provided a great combination to inspire many foreign investors to buy second homes or investment properties in the US.  Foreign investors see the housing market is a great bottom price buying opportunity, and the cheap currency offering in the US contributes to prime investment potential.

While foreign investment may help stabilize the US market, most believe it will not be enough to spark the turnaround people are hoping for.  Strong signs of US economic stabilization, continued reductions in foreclosures and loan delinquencies, and other favorable market indicators are needed to drive US buyers back into property investment and home buying. 

Psychologically, there is fear and uncertainty in the US home buying market.  Interestingly, many real estate investment brokers are trying to motivate buyers by suggesting this is one of the best times in history to buy the right property for investment purposes.  The point of peak fear and price bottoming is the best time to invest in any market.  The challenge, of course, is that bottoms are hard to predict.  Much of the data produced of late, however, seems to suggest the market may be getting close.  Thus, the ultimate question is, will 2008 be remembered as the dramatic turnaround in the housing and mortgage markets, or will it simply be a continuance of the slump?

No matter what happens, US equities, housing, and other markets seem primed for a significant move.  Generally, a period of stabilization, as has been developing in the equities and housing markets, is followed by a sharp move, up or down.  The government intervention and Fed rate adjustments have contributed to the potential of a sharp reaction soon to come.  A strong and positive trigger, such as continued foreclosure improvement, lower delinquency rates, or a surprise indicator could spark a strong 2008.  A negative indicator could, of course, produce the opposite.

In another sign that Americans are borrowing more than they can afford, recent reports have indicated that credit card delinquency rates are increasing.  This makes sense, as borrowers struggling with mortgage payments are likely to place more priority on meeting those needs.  More than half of Americans spend more each month than they make, and the average US household has $6,500 to $7,500 in credit card debt, depending on the report.  One of the problems with credit financing is that as borrowers increase debt reliance, more debt reduction companies and scammers abound. 

Many credible equity lenders suggest that Americans avoid consolidating debt by using home equity or debt consolidation services to pay off credit cards.  While this move makes financial sense if interest rates are better, many say it does not work practically or psychologically.  The problem is, many will move credit card debt to a home equity loan, but never change spending habits.  They simply increase borrowing potential, continue to borrow for non-essential items, and eventually the credit cards fill back up anyway.

For investors, borrowers, credible lenders, and most Americans, a strong 2008 economic showing will be near the top of the resolution list for the US.  Gyms and fitness centers will be full of dedicated and not-so-dedicated fitness fanatics, watching the financial tickers and business headlines.

Market Recap

With little news reported on Wall Street today (Monday, December 24), typical Christmas euphoria kicked in and the stocks ended a shortened session (1PM EST close) with nice gains.  The Dow was up 98.68 or .73%.  The NASDAQ and S & P also climbed about .8%.  Markets were excited about news that Merrill Lynch would be receiving investments from two large groups.  Oil prices were up in the morning.  Statistics show that Americans are struggling with credit card delinquency along with other credit troubles in the mortgage industry.  All US markets are closed Tuesday for the Christmas holiday.

Neil Kokemuller
Monday, December 24, 2007
8:45 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA.  He has a MBA from Iowa State University with a specialization in marketing.

Please note:  The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments.  Actions taken on the basis of the information shared is at the sole risk and discretion of the individual.