Yes, I did. It ain’t happening overnight, not even next week. But sometime in the year 2013 is the magic number tossed out by the number-crunching experts as the year our real estate market finally recovers.
Economists who spoke at the “Mid-year Economic Update” panel at the National Association of Real Estate Editors meeting last week in San Antonio agreed that unemployment and the foreclosure inventory remain the biggest barriers to recovery as the US economy struggles for breath.
“The good news is that we’re in a recovery … but we’ve got a ways to go,” said Jed Smith, managing director of quantitative research for the National Association of Realtors.
Here’s a way to get a grasp on what happened back in 2008: $14 trillion in wealth was wiped out, equivalent to the loss of about one year’s worth of income for all U.S. workers, said Smith. As he told me later, usually 40 banks are on the Fed’s “observation” list of being at-risk for failure.
There are now 900 banks on that list.
And here’s why Mr. Smith is now my new hero: he blamed a lack of job creation, unreasonably stringent lending standards, and depleted consumer confidence as contributors to the stagnant economy. Guess who’s court those balls fall in? The Obama administration.
Count on this: distressed home sales will sop up 35 percent of all home sales for the next two to three years as we try to reduce foreclosure inventory. In most areas, foreclosures and short sales will not get worse, but will not get better; we will just ripple along until the inventory clears.
What could hurt recovery? Plenty: congressional “reforms” that could lead to higher mortgage down payment requirements, tinkering with or dumping Fannie Mae and Freddie Mac, and eliminating the home mortgage tax deduction.
A terrorist attack? Political upheaval?
Uncertainty in the European credit markets is another wild card for the U.S. recovery, since many wealthy Europeans are buying U.S. real estate, particularly in Florida and New York City. (Though capital flight helps us, as we see from the Mexican buying spree in parts of Texas.) Smith suggested easing tourist visa policies as a way of creating more U.S. buyers. Good idea.
Every panelist agreed that Real Estate is a completely local story, and national “lump-em” reports such as Case-Shiller really hurt sales in the healthier markets. U.S. home prices are down, generally, but the actual market has been stable over the last three or four years. Smith expects annual sales of about 5 million for the next three to four years.
Mark Dotzour, chief economist for the Texas A&M Real Estate Center, never pulls any punches about this: government stimuli have delayed recovery, he believes. He doesn’t think we are in a double dip because we till have not yet hit bottom.
Using his diagrams, Dotzour tells us the RE market essentially “fell off a cliff,” but the government’s “lifeline” of programs is propping up the market artificially. He’s talking the homebuyer tax credit programs, “Cash for Clunkers” auto program, loan mod programs and Federal Reserve’s purchase of Treasury debt. He thinks the market would have come back faster if the government had not interevened. I love this Dotzour-ism:
“We like capitalism on the way up and socialism on the way down,” he said.
Dotzour is particulary critical of some price metric reporting. He says that if you separate none-foreclosure inventory from distressed, nonforeclosure properties have held a fairly constant price. But when we report metrics we lump everything, overlooking the differentiation between distressed and nondistressed homes. And, “…not every city in this country is … Phoenix or Las Vegas.”
You’ve heard it before, we heard it again: we need jobs, cheap mortgages, and to clear “shadow inventory” of homes that have been foreclosed upon but haven’t yet been listed for sale. That shadow inventory is one thing that keeps prospective buyers in uncertainty and making low or no bids.
It’s really Miller time for landlords. If there’s one area where we can find price increases, look to the rental market, where Zillow’s Stan Humphries says demand will outpace supply. Between 1.2 million and 2.2 million homeowners are transitioning from owners to renters, and rental prices in almost all metros are expected to rise about 3.5 percent to 4 percent this year, he said. Steve Brown, who was also at NAREE on Thursday, said Dallas rental prices are already up such that it now costs $200 more per month to lease than own.
Humphries also thinks the homeownership rate may slip below the traditional standard of 64 to 65 percent, but once home prices stabilize, there will be a resurgence of buyers.
Good news take-away: we’re moving in the right direction. The pending reduction in the conforming loan limit later this year (deep breath) should have only a modest impact on the market. We may be close to half-way through clearing out the foreclosures, according to Shaun M. White, vice president of corporate communications for Re/Max International, who said the nation has already seen about 3.5 million to 4 million foreclosure sales.
The bad news is not one expert at this conference thinks the market will improve in the next few months, and not one was particularly impressed with the Obama administration’s handling of the crisis. The federal homebuyer tax credit programs were ineffective, essentially “stealing” sales forward that would have occurred at a later time. The market’s sustained declines should end in 2012-13, but we are not going to hit bottom until (foreclosure resales) have peaked, said Humphries, which he thinks should occur this year.