Real Estate Outlook 2009: Thawing the Frozen Market

decline, and a new cycle, started back in September 2007. The bad news is that this downward trend should last two more years--but only if the cycle theory holds up under today's extraordinary economic circumstances.

Scott, a veteran of four such boom-and-bust periods, claims that the most recent cycle was cut short to just seven years due to the housing bubble bursting so suddenly in 2007. "In 2005, we had an ultra-frenzied market," he explains. "From 2006 to mid-2007, we had a frenzied market until the credit crunch hit in mid-2007. We operated at a lower adjusted rate until March of [2008], when we saw another 5 percent drop" in sales.

Sales from September 2007 to September 2008 were flat, he says. In October, home sales took a huge dive as activity froze due to the wild gyrations in the stock market and collapses in the investment banking sector. At the same time, while homeowners continued defaulting on their loans in droves, talk began of the $700 billion federal bailout of banks.

It will take a few months, Scott predicts, for the public to regain its footing in the market and for the government to figure out what it plans to do to help homeowners in trouble. "We'll start [2009] off at the lower adjusted plateau and work up to a healthy market in the next several years," he predicts. "Then we'll see an increase in sales activity of 40 percent to 60 percent in the next four to five years."

Restoring Confidence

Nationally, to get back to a good market, banks would have to start lending again and consumer spending would have to increase. Jobs also need to be plentiful, and energy and food prices need to stay reasonable. Restoring consumer confidence will be the catalyst for this turnaround, but it may take longer than some analysts expect.

During the wild month of October 2008, potential buyers froze with fear, says Lisa Milkovich, a realtor with the privately owned John L. Scott office in Renton. She typically sells 30 to 40 houses a year, a mark she expects she will hit for 2008 when the final tally is in. To get to that number in 2009, however, she's ramping up her marketing efforts.

"People are paralyzed and just inundated with the negativity that's happening in the stock market, the economy and the $700 billion bailout," she says. Milkovich had four homes listed from