The Real Estate Market.
Kind of a long post and hard to follow in spots. But an excellent insight into the Real Estate Market. Read the post and let me know what you think.
If you want to know about the local East Contra Costa Real Estate Market give me a call at 925-260-4321.
* * * * HARD CORE REAL ESTATE TALK * * * *
The Analysts at Barklays Capital appear to be engaged in some numbers crunching. Sadly, they fail to understand what we mere real estate industry practitioners understand - - SUPPLY DOESN'T EQUAL DEMAND.
LET'S MAKE THE CONSUMER THE FOCUS OF THE HOUSING MARKET.
If the question is, "Is this a good time to buy a home?"
Considering the historic low interest rates, supply of well priced homes, the answer must be a resounding "YES". However, unlike the examples of history where the future investment potential was a huge factor, that may take a back seat today to AFFORDABILITY, which is quite high. With high AFFORDABILITY, comes OPPORTUNITY for serious housing consumers make the most of this unique opportunity and focus their housing needs on BUYING their next home rather than RENTING their next home.
Barcleys says "Housing supply could normalize in 2014". That's a mere prediction. Let's look at the FACTS that influence consumers TODAY.
FACT: Each and every single home buying consumer with whom I've communicated in the past year sees buying a home as an opportunity due to low interest rates and low home prices. Interest rates are at an historic low and home prices are back to the 2002-2003 levels.
FACT: The overwhelming percentage of residential housing consumers would prefer to OWN their home rather than RENT.
The FACTS about the housing market have more meaning to consumers than the predictions of the "Prognostication Industry".Should consumers buy a home NOW because interest rates are low and home prices are low?? OR, should they consider the prediction that, by 2014, housing supply could normalize". There may be a new NORMAL.Barclays says: "HOUSING SUPPLY COULD NORMALIZE IN 2014"By Justin T. HilleyRead article HERE. . .Lenn says: SO WHAT?? Counting the supply of housing is a worthless activity without a concomitant supply of housing consumers. Focusing on the housing supply is an activity for housing analysts who obsess over statistics from which they project trends and make housing forecasts. Sadly, these top down statistics are worse than useless. They are misleading.The analysts say, "household formation rates — a function of population growth, overall economic activity and home affordability — should determine the fate of the housing market in coming years".I reject that premise. This is not a chicken and egg conundrum. The very heart of a profitable market requires that there first be a demand, followed by an investment followed by a supply, followed by a profit. DEMAND IS FIRST. Otherwise, we could experience a country full of unsold homes constructed without a demand just as there is now a supply of unsold Chevrolet VOLTs.Barklays says further: "If construction remains at or slightly above last year’s levels, and household formation rates rise to 1.1 million, the supply of housing will begin to normalize in two to four years, analysts at Barclays Capital estimate."Lenn says: WHAT?? Household formation no longer equals concumer demand. Until about 2007, economists could make a fairly safe prediction that, with the growth of household formation, more consumers would enter the housing market and continue to purchase real estate. However, the Barclays' narrow historical projection ignores some current trends that make their traditional statistical prognostications less than reliable. More households no longer equals more home buyers.CONSIDER:
Children living with parents
Increases in rental consumers
Loss of credit
Loss of savings
Loss of housing equity
Higher cost of living
Loss of consumer confidence
And More. . . .LET'S MAKE THE CONSUMER THE FOCUS OF THE HOUSING MARKET. Suddenly, there is a need for the housing industry to satisfy the needs of the home buyers.
** The housing industry will not recover due to an increase in housing supply.
** The housing industry will recover when the consumer DEMANDS a supply.
Barkleys is correct to acknowledge the presence of "high barriers to credit". A purchase of real estate is one sector of the economy whereby QUALIFYING CREDIT is essential. Few consumers pay cash for residential owner occupant real estate and that's unlikely to change in the foreseeable future with joblessness high and average earnings falling. Low interest rates do help buyers qualify for housing credit, but those DTI ratios continue to tighten and the regulatory atmosphere for housing credit continues to tighten. For every drop in marginal interest rates there has been a continuing rise in credit score minimum criteria. Further, as regulatory guidelines would permit more consumers to qualify for financing, lender overlays and obscure regulatory barriers continue to exclude huge numbers of those newly formed households from the housing market. Consider the recent announcement of a barrier to financing in the FHA guidelines reducing seller contribution to buyer closing from 6% to 3%.
Barclay says: . . . . . "loosening underwriting guidelines is unlikely considering the abundance of bad underwriting in recent memory and that most new mortgages are backed by the government."Lenn says: The failed underwriting guidelines were not promulgated by the consumer. They were developed in a TOP DOWN process beginning with government mandates to influence a political agenda and with a total disregard of sane and safe underwriting guidelines. The consumer was not the perpetrator. The consumer was the victim, evidenced by the foreclosures, short sales, loss of consumer credit, loss of equity and the ultimate - the loss of dignity.A FEW NEWLY FORMED HOUSEHOLDS ISN'T GOING TO CURE THE HOUSING MARKET IN A FEW SHORT YEARS. Further, a critical element of SUPPLY that may reduce that predicted production is the LOOMING MASSIVE STUDENT LOAN DEBT. Just wait until those student loan interest rates go up and those graduates enter the real estate market. FEASIBILITY will be credical.NEED, OPPORTUNITY and ABILITY. The FACTS ON THE GROUND are what I believe influence consumers. Consumers buy because of need, opportunity and ability. Most housing consumers ALWAYS WANT to own their own home. The question is, are they able??Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.
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