Waiting for the Bottom of the Real Estate Market?

RECESSION ENDS IN 2009 Many people have been telling me for years that the real estate market is turning around.  Newspapers and blogs have been enthusiastically predicted that the recession ended and everything was going to be alright.  I heard the real estate market had “turned around” in 2010, but the downward trend continued.  Now new data is coming forward.

Home Prices over the Last 10 YearsAll signs indicate that we are very likely skimming the bottom of the real estate bust, and things are just beginning to look up.  Nationally, many other locations were much harder hit than Massachusetts.  Prices and sales in the Boston area were not has hard hit as Central Massachusetts.  The towns in the Wachusett Region lost an average of 25% to 30% from 2006 to 2012.

October sales numbers jumped 21%, according to the Warren Group.  Meanwhile home prices spiked 4.4 percent, according to the Massachusetts Association of Realtors, which also released its October numbers. .  This is the most impressive jump in median prices since the end of the $8,000 home buyer credit in 2010.  Unfortunately, the Warren Group, which includes all sales in Massachusetts, not just Realtor assisted sales, has home prices staying essentially flat.

NEW CONSTRUCTION INVENTORY 112812The new construction starts are down dramatically, as you can see by this chart.  In 2000 there were 850,000 homes built, and by 2005 we reached an all-time high of almost 1,400,000.    Today, we are lucky to see 390,000 built and they cost more than the existing homes available.  The new energy and upgraded code requirements haveNew Construction Inventory added thousands of dollars to the cost of construction.  Material costs have really started to move up as well, which makes new construction more risky.  As you can see, the inventory for new homes for sale is down dramatically, at its lowest point since 1960.

Although the inventory is down in both new construction and existing homes for sale, the advice to buyers is to consider buying sooner rather than later.  It is only a matter of time before the prices do start to move up and the interest rates will unlikely be better.  Buy a home you love and settle in for the long haul as a wonderful place to live, not just an “investment”.

The elections are over, and if our politicians don’t push us over the “Fiscal Cliff“, I believe we will start the slow recovery of improved pricing and reasonable sales pace.  Sellers will need to listen careful to their Realtors when pricing their homes, but the low inventory will help move homes.  I saw the crash coming in 2005, but I never believed it would be a seven-year fall.

Have We Hit the Bottom with Home Prices?

My daughter, the economist, tells me was are in a New Economy.  I believe her, because we have suffered so many ups and downs with this recession and “recovery“, perhaps the only way to describe this is an New Economy.

According to the traditional economic parameters, the “recession” ended in June of 2009.  That was three years ago and no one I know believes the recession ended then for them.  In perfect “economic terms” that may seem true, but the lingering damage continues today.

It will not be possible to have a sustained recovery until the housing market, including new construction, is on solid ground.  We “cheer” when we read a report in the newspapers that tells us today “Pending Sales in June are up 29%”, but in the next breath, “Month to month pending home sales are DOWN 3%”.  The bad economic news about lack of  job growth, significant slow down in China, and the European financial meltdown continue to affect the sentiment and confidence in the US.

Serious financial minds believe our country is in a better place than the rest of the world, but we will continue to be affected by the global economy.  The Wall Street Journal makes a case that the housing bust is over, but they also acknowledge that “The biggest threat is a large shadow inventory of unsold homes, homes which owners won’t put on the market because they are underwater, homes that will be foreclosed eventually and homes owned by lenders.

We grasp at straws.  While it may be tempting to say home prices have bottomed out, HIS Global Insight’s Patrick Newport warns it is, “premature to do so.  The most likely scenario, in our view, is that home prices will zigzag over the coming months, rising during the selling season, slipping in the fall.”  He feels that home prices may start to move up cautiously in 2013.

Alternatively, if you want to refinance, the timing could not be better, and there is even help for folks with less equity than their mortgages.  Call us and we can help.  It is also a good time to buy, because interest rates have never been better, and we will get through this very difficult time.

Real Estate Indicators and the Real Estate Market Review

The leading market indicators are showing some positive signs toward recovery. The most recent Case-Shiller Report indicates that the prices in the leading cities are flat, not descending, as may be reported by some of the media. Of course, all real estate is local and some areas may still be struggling.

BOSTON MEDIAN SALES PRICE

 

 

A recent article in the Worcester Telegram and Gazette noted that the home prices across Massachusetts had fallen about 14% since 2006, but the Warren Group, which tracks all sales in the state, report that the home prices in Central MA have fallen 27% in that same time frame.

WORCESTER MEDIAN SALES PRICE

 

It will certainly take Worcester County longer to recover from this downturn than the Boston area. Employment figures confirm that Boston  unemployment is 6.8% and the Worcester unemployment stands at 8.4%.  Even though there is quite a wide discrepancy between Boston and Worcester, but both numbers are better than the national unemployment of 9.2%

Nationally, the Builder Confidence Level is in the positive realm, because there are more new housing starts most notably in the West.  The positive signs in many areas of the market belie the Consumer Confidence Index at 39.8%, which says the consumers believe we are still in a very serious recession.

NAR ECONOMIC INDICATORS FALL 2011

This video from the National Association of Realtors give some glimpses of light at the end of a long dark tunnel.  We can all use some good news.  Young people are starting to look at homes because they have faith that things will improve, and it could not be a better time to buy. Interest rates have never been lower and prices are excellent.

An 80% Decline in New Construction?

When will the government realize that supporting new construction is a necessity for a complete recovery of the economyJobs are important, and new construction creates jobs in many fields. Instead of supporting the building and real estate businesses, the congress seems to be putting up road blocks to the recovery of this industries.

The National Association of Home Builders Assistant Vice President, Robert Dietz, testified before the Senate Finance Committee last week that the decline in home construction has been historic and unprecedented.

The building industry has had an 80 percent decline since the peak seen in 2006 in single family new construction. Just let that begin to sink in….80% decline in an industry which creates 1,000’s of jobs!! New Construction Jobs Plumbers, plumbing supply companies, electricians, electrical supply companies, truck drivers, gravel companies, back hoe drivers, foundation forms people, concrete companies and drivers, framers, finish carpenters, roofers, lumber yards, masons, painters, carpet installers, carpet stores and manufacturers, kitchen designers, appliance stores and manufacturers, bull dozer drivers who spread loan and landscape people who put in lawns, nurseries who provide shrubs, and many more.  Then we can talk about the Realtors who sell the new homes, mortgage  loan officers who finance the houses, title companies who research the title, insurance companies who insure the property secretaries who prepare closing documents, and lawyers who close the transactions.  There are approximately 80 people who touch a traditional real estate transaction, and that number is greatly multiplied for a new construction sale.  When the reports for unemployment talk about a 9.1% rate, remember the real number is more like 18%, because many of the people in the building and real estate industry are self-employed and they don’t show up on the unemployment numbers.

The rate for building single family homes is now 353,000 homes per year as opposed to the 1.8 million in 2006.  Based on these numbers we will soon see a serious shortage of homes.  We are also seeing a troubling turn of events with many people loosing their homes to short sales and foreclosures and having to move in with family.  We are seeing many young people graduating from college with no job prospects, and they are moving back home with mom and dad.

This will be causing a future shortage of homes and when the economy finally recovers, we could be in for some difficult times.  This may put pressure on prices of homes, because there will not be enough houses to meet the demand.   Building is one of our core home-grown industries, and we must bring some stability to the builders.

Congressmen in Washington have been threatening to eliminate the mortgage interest deduction, to end federal support for the mortgage industry through Fannie Mae and Freddie Mac backed financing, and to require a minimum 20 percent down payment on home loans.  The FHA mortgages already require an additional charge for insurance, making it more difficult and costly for buyers to get financing.  These steps are being proposed by a government that says it is trying to get the economy on the road to recovery, and many of these proposals are counterproductive.