NORWELL, MA – Veteran real estate industry expert Walter Hall,
Chairman of HouseSavvy USA, recently updated his analysis of the
national real estate market. Mr. Hall has been engaged in national real
estate market activities since 1970 as a businessman, consultant and
author of four books on real estate. Following is a summary of his
analysis.
THE FACTS – at the end of 2010 the overall national real estate picture was pretty grim:
•
10.7 million homes with mortgages were “under water” – that is, their
mortgages exceeded the value of their homes (source: First American
CoreLogic);
• Another 2.3 million homes were approaching negative equity (same source);
•
Government programs designed to help homeowners stay out of foreclosure
failed to help many do so and half of those who were helped went back
into default;
• Home prices nationally were down more than 31% from
the 2006 peak, including a 4.1% drop in 2010 (source: Standard and
Poor’s Case/Schiller Index);
• Near the end of 2010 there was a 10.1
month supply of unsold listings nationally, up from 7.2 months a year
earlier – an increase of 29% year-to-year. A very negative trend line.
Sales year-to-year were down 25% -from 419,000 in November of 2009 to
315,000 in November 2010 (source: National Association of Realtors).
• Throughout the country, one out of every 46 mortgages was in foreclosure (source: RealtyTrac).
•
Of the top 20 markets with the most foreclosures, Florida led this
group with nine market areas, including Cape Coral, Miami, and Orlando,
followed by California with seven such markets, including Modesto,
Riverside, Stockton, and Sacramento. Nevada had two such markets, Las
Vegas and Reno, and Arizona had one, Phoenix. (Source: RealtyTrac).
•
It’s important to point out what these market areas all have in common,
i.e. they were all “red hot” market areas during the period from 1998
to 2006, with rapid growth, excessive new construction, easy cheap
credit and an overall speculative fever, such as the belief that you
could buy a house today and “flip it” tomorrow for a good profit. After
40 years working in the national real estate market, one of the key
lessons I’ve learned is that what goes up fast comes down hard and fast –
equal and opposite.
THE IMPACT – a major stumbling block to
economic recovery. At the peak of the market in 2006 most homeowners
felt pretty comfortable that the equity in their home provided a nice
nest egg for retirement, investment and enjoying the good life. Now,
four years later, that nest egg has vanished or greatly diminished for a
large number of homeowners. Result? – a big drop in consumer confidence
which translates to the major engine of a growing economy, consumer
spending. The other major impact is jobs related to real estate
activity, i.e., construction, furniture, appliances, real estate,
mortgage and insurance sales, moving companies, and a host of ancillary
service organizations, collectively accounting for a huge number of jobs
lost these past four years.
IT COULD HAVE BEEN WORSE: The
housing crash could have been worse had the government not intervened
to stop the free fall of home prices with record low interest rates, the
home buyers’ tax credit, and the increased involvement of Fannie Mae,
Freddie Mac and the FHA in providing mortgage liquidity. However, I
sense a growing awareness by a lot of Americans that government programs
to prop up the housing market have just postponed recovery. They’ve
given a lot of homeowners the false hope of being able to stay in houses
they never could afford, delayed foreclosures that will eventually take
place anyway, and most importantly, prevented home prices from
establishing a bottom.
IT’S NOT THAT BAD: If one out of every 46
mortgages is in foreclosure, it means that 45 out of 46 aren’t. If 20
market areas throughout the country are in really bad shape, it means
that hundreds and probably thousands aren’t. The other big lesson I’ve
learned over the years is that real estate is extremely local in nature.
In every broad metropolitan/suburban area – at any given time – there
are always certain communities, neighborhoods and price ranges that are
in higher demand, or conversely, lower demand. The same goes for
individual states and regions of the country – some are just more in
demand than others, based on such things as climate, employment, taxes,
education, and entrepreneurial opportunities.
UP, DOWN and
SIDEWAYS: The 20 top foreclosure areas previously cited – plus others
with high unemployment and more than average number of foreclosures -
are presently “Down” and will likely stay that way for some period of
time. However, the majority of real estate markets throughout the
country did not experience “red hot” price-run-up status during the
period 1998 – 2006 and consequently will most likely enjoy an “Up” or
“Sideways” trend in the years ahead. A good example is the Greater
Boston Market, made up of the 167 cities and towns surrounding Boston.
In my experience the best single indicator of the overall health of any
given real estate market is the supply of unsold listings expressed in
months. A six month supply is a good indication of a “Balanced Market”
with sellers and buyers about equal and home values holding steady. The
Greater Boston Market started the year 2010 with a 6.89 month supply of
unsold listings and ended the year with a 6.72 month supply. It started
the year with an average sale price of $414,850 and ended the year at
$408,632.
This key factor (Supply of Unsold Listings) is the result of a number of related activities and trends:
• Prior market activity, such as rapid increase in demand or supply
• Vacancy rates (best source: Census Bureau)
• Sale activity (best source: local Realtor/MLS Data)
• Home price trend (local Realtor/MLS Data)
• Unemployment rates (Bureau of Labor Statistics)
• Population change (Census Bureau)
• Foreclosure rates (RealtyTrac)
• Building permits (Census Bureau)
Serious
home sellers and buyers should do themselves a favor and use this as a
check list to determine what kind of market area they live in or would
like to live in – before they start the process.
THE “DOWN”
MARKETS – TOUGH CHOICES: The key question appears to be – how much of a
drag on the housing market recovery are the “Down” Markets? What
percentage of the overall market do they represent? Based on my
research, contacts and experience, my best estimate is in the range of
20%. In my opinion, that is a drag – but not an insurmountable one.
Here’s
the choices: (1) should we focus on reviving the housing market by
concentrating on certain hardest hit areas within the 20% group –
knowing that some of these areas are in such bad shape (all or most of
the factors cited above are negative) that the cost/benefit is just not
there at the present time; OR (2) eliminate all artificial government
supports and let normal market factors establish a bottom and subsequent
recovery of the housing market? I’d try choice #1 first – but on a
limited test basis. Based on my experience working with leading real
estate firms throughout the country, I would pick one distressed market
area as a test and work with a leading real estate firm (or firms) in
that area to analyze the market and determine what it would take to get
unsold home inventory levels to the six month “Balanced Market” level,
that is, balance the supply and demand to bottom out the market. If the
test proved positive, it could be taken into other distressed market
areas that had a good possibility of turning around. Of course, there’s a
lot more needed to make this type of program work, such as the role of
mortgage lenders and local and federal government in funding this type
of operation – which is a subject I plan to expand upon in future
articles.
(No Ratings Yet)
Loading …
Posted in 
Add to Google