THE MORE THINGS CHANGE, THE MORE THEY STAY THE SAME! . . . . HOW MUCH HAS REALLY CHANGED IN 16 MONTHS!
Lenn, as always, make some good points. But why is everyone talking about recovery and why do so many wait for that day when we will be back where we once were? Was the market of 2004-2006 a market we want to aspire to? Loans were made that did not reflect the true ability of the buyer to repay. Then housing values shot up. Wall Street greed played a major role.
Today's value is what homes are worth. We have to deal with it.
The below is a REPUBLISH of an article posted on September 23, 2009.
THE PROBLEM WITH PREDICTIONS FOR ECONOMIC RECOVERY IS THAT THEY ALL BEGIN WITH WHAT WAS, NOT WHAT IS.
* * * * WARNING! HARD CORE REAL ESTATE TALK * * * *
Predictions for a housing recovery are based on the market that was, not what is.
We see housing market statistics that report a rise in housing units SOLD of 15% based on closed contracts November 2008-November 2009. What is missing in many of these market reports is the actual number of units sold $Dollar volume for November 2009 compared with actual sold $Dollar volume for November 2008. Fact is, when digging deeper into actual statistics, we find that the number of units sold in 2009 was, indeed, 20% higher than the number sold in 2008.
What's the news headline?
- REAL ESTATE MARKET RECOVERING!
- 20% INCREASE IN UNITS SOLD NOVEMBER 2009 OVER NOVEMBER 2008!
There may have been an increase in the number of units sold year over year, but the dollar value of the production is only 84% of the previous year.
- 100 units sold @ $100,000 = $10,000,000.
- 120 units sold @ $70,000 - $8,400,000.
The increase in the number of sold units may be influenced by transitory stimuli such as:
- TAX CREDITS,
- Stimulus financing subsidizing down payment and/or closing costs,
- Grants from local governments for down payment and/or closing costs.
When the government determines that the economy has sufficiently recovered, these subsidies paid for out of borrowed money will end. Will that then trigger a new recession in housing??
Whether looking at national or local real estate markets, there are a few undisputable facts:
FACT: The value of all real estate transactions is only about 50% to 80% of the value 4 years ago.
FACT: Approximately 20,000,000 home owners have a home with a mortgage that is more than the market value of their property (negative equity).
FACT: Home owners with negative equity are not in the real estate market to buy.
FACT: Home owners with negative equity are usually in the market to sell through Short Sales.
FACT: Foreclosures are predicted to continue for the next several years as consumers with negative equity need to and cannot sell.
FACT: Foreclosure sales and Short Sales will continue to reduce the market value of local homes.
FACT: Unemployment @ 10% plus or minus will delay the housing recovery even though none of the "experts" has factored that into their predictions. Folks who have lost jobs and income for a year or two are not going to qualify for a mortgage loan as before.
WHEN THE NATIONAL "EXPERTS",
- Wall Street,
- Office of the President,
- The Federal Reserve,
- Department of the Treasury,
- HUD,
- Fannie Mae and Freddie Mac
- Financial writers,
- NAR,
- Pundits,
- Talking Heads,
- ActiveRain members
predict a recovery in the housing industry, what will they mean? Will they predict that the economical output or value for the real estate industry has recovered to what it was before the onset of the recession, stated to be December 2007.
If so, what will be the source of the market activity (buying and selling) to fuel this recovery? Clearly, the activity must begin with home sellers and home buyers. However, with 20,000,000 home owners unable to sell or buy, where are the transactions going to originate??
FIRST TIME HOME BUYERS? This group of home buyers focuses on less than average price ranges in housing. Further, they are the consumers most likely to seek subsidies at a cost to all tax payers and/or sellers. Once the government ends the subsidies, rebates and grants, this market will shrink.
MOVE-UP HOME BUYERS? With an estimated 20,000,000 home owners who have negative equity, the move-up market has contracted dramatically. Unless a home buyer purchsed prior to the housing boom of 2004-2006, they are not likely to be financially able to take the financial loss to sell their present home with negative market value in order to buy new/newer, larger, retirement, etc., home. How many ActiveRain members are trapped in a home with negative equity??
Even home owners who purchased their homes many years ago are quite often reluctant to sell at today's prices when they know that the market value was 20-50% higher a mere 2-3 years ago. They simply stay where they are and wait for the recovery.
BUYERS WHO RENT THEIR EXISTING REAL ESTATE. That was once a viable buying pool of move-up buyers. However, with the Draconian HUD and Fannie Mae requirements for equity in the rental unit, many potential buyers are out of the market and stuck in their old home.
HOW SHOULD THE FACTS ABOVE AFFECT YOUR BUSINESS PLAN? Know your market and don't be mesmorized by the headlines that predict a housing industry recovery.
"Honey, do you believe we'll be approved for the loan on our new home?"
"I hope so Dear. The lender said we must show 30% equity in our old home if we rent it to qualify for the loan on the new home."
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Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988. Serving home buyers in Maryland and Northern Virginia.
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