Urban L.A.: Wishful Thinking on the Long Road to Recovery

Per the usual, I've been chatting it up with a number of REO agents, commercial brokers, and investors as we all swap information and opinions about where this never ending financial free fall will finally land us. Nothing new really, but a penchant for positive thinking and the slightest of positive indicators has everyone giddy with hope, still parched and delirious, but picking up the pace of the army crawl towards a mirage of economic recovery.

Meanwhile, “the housing recession is not over. Housing prices will continue to fall,” Zillow Chief Economist Stan Humphries said at the National Association of Real Estate Editors conference in Austin, Texas.

Other home-price indicators like the Case-Shiller Index have likely prematurely announced that real estate values are turning the corner. Since bank-owned foreclosure properties are included in calculating appreciation rates for the overall index, the numbers are skewed, as bank repos generally experience significant appreciation from bidding buyers in competition to pick up a bargain.

Humphries also indicated that:

• The second phase of the housing crash will begin when prices stop falling, but will amount to a long period of very slight price gains because of “shadow inventory” — or delinquent and foreclosed homes waiting to go on the market.
• More than one in five of the homes with mortgages are worth less than is owed on the loans. This, along with high unemployment rates (over 12% in California) will only continue to fuel the foreclosure crisis. We are not out of the woods yet!
  
• Surveys reveal that nearly 5.3 million homeowners are “sideline sellers” — homeowners waiting for the first signs of recovery before listing their homes for sale.
  
• The number of homes for sale is increasing. Though sales increased in April, there were also more new listings that month, offering more choice to buyers while keeping values at bay.
  
• It’s a myth that “tax credits saved our bacon in terms of the housing market.” The driving forces of accelerated movement in the market are really low pricing, low interest rates, and the fact that FHA loans are being leveraged in four out of every 10 transactions.
• Tax credits are leeching demand from future months, “and we’re going to pay for it in July and August.”

Zillow is now estimating that home prices still won't bottom out until some time this summer, and once we return to stabilization, no one should expect a quick bounce back: we're going to be in it for the long-haul with a slow and gradual return to former values over the course of years. Stay tuned!