Coming Out of the Real Estate Woods - Are We There Yet?

On Wednesday July 15, Fitch Ratings issued a 189 page report about the U.S. real estate market, and their belief that we are at or near the bottom of the real estate market collapse.

This is great news, particularly for real estate professionals such as realtors or investors forced to sign a rental agreement instead of a sales contract. That being said, the report's optimism was cautious, and warned that there is still a long way to go.

One of the reasons for hope, in evaluating the movement of the market, is the increase in builder confidence and decline in builder cancellations from Fourth Quarter 2008 to First Quarter 2009. New home inventories are decreasing (helping to limit supply), while builder cancellations are approaching "normal" levels.

One of the problem areas remains consumer confidence, and the lingering reluctance to buy out of fear that the market will slip further. Existing homeowners, who might otherwise trade up or buy a second home, are particularly fearful of further market decline, which leaves first time homebuyers and real estate investors as the main source of demand. These buyers alone, no matter how much they may want to get into the real estate game and sign their first rental agreement as a landlord, simply can't create the momentum needed for a full turnaround.

The report also noted that the Obama Administration's efforts have had little (if any) effect on the nationwide real estate market. While it is laudable to try and minimize the number of homes lost to foreclosure, the current attempt to push refinance and mortgage modifications has not delivered on its full potential. The Making Home Affordable initiative needs some revisions and additional approaches if it is to succeed, the report noted.

There is good cause for optimism, but unfortunately for each hopeful indicator, there's a negative indicator to counterbalance it. Still, while consumer confidence has not returned to the national real estate market, general public opinion about the economy continues to gradually improve, which will bleed into consumer confidence in real estate soon enough. In the meantime, first time homebuyers and landlords looking to add a rental agreement or two to their monthly income will have to continue to offer fresh demand and keep the real estate market afloat.