Real estate exec Jamie LeFrak disagreed with my blog item earlier this week that declared home prices had hit bottom. His argument? The recent uptick in sales is a “life preserver” tossed to the industry by Washington in the form of low rate, government-insured mortgages. “Now that the Fed is beginning to lose control of the currency and therefore lose the ability to maintain these artificial rates, you will see a second wave of lower housing pricing,” he says. That’s a shot of his grandfather’s LeFrak City development in Queens by the way.
When will the bottom come? LeFrak says it’s when home prices revert back to their average multiple of 3.3 times the median income of a city or when the typical mortgage payment is 110% of what you’d pay in rent.
“You can expect this second leg down concurrent with interest rate hikes which the futures markets are predicting for no later than November and the bond markets are showing for mid-2010,” LeFrak says.
“The real bottom is somewhere in 2011 or 2012 when everyone (including journalists) is sick of discussing the entire real estate asset class and it has been discredited as an investment. You will also notice this when all the ‘bargain hunters’ are out of the market as well because they can’t afford the cost of mortgage interest to ‘snap up’ the bargains.”