Housing: A Reality Check
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Most investors are waiting with breath held for the housing market to rebound. Most of them own a home. It's where many of us have our largest investment. Our home is our savings account, waiting to be tapped when we're ready to sell and make a profit. Or it used to be.
With inflation gone and homes now seen as they should be: places to live, the housing market has been in a slump for at least three years. At the beginning of each year, almost everyone expects this year to be the rebound, the one where prices start to move higher. Here's the reality: this ain't the year. Maybe next year isn't either. The reason: supply and demand.
The supply is heavy. According to RealtyTrac, foreclosures have sent 872,000 homes to the largest U.S. banks and mortgage lenders, almost double the number of four years ago. The pipeline for more foreclosures is even more robust. The company predicts several million more homes will find a bank owner over the next few years. That means more homes for sale on top of homes that will normally come from people who want to or have to move. That means lower home values to clear out inventories. Moody's thinks that translates into another 5% drop by the end of this year with a hope of some increase in prices next year. But if foreclosures accelerate, that may be optimistic.
What can change this gloomy scenario? Jobs, jobs and more jobs. Foreclosures don't happen when people can afford to pay their mortgages. In fact, up until this year, mortgages were always the highest priority for homeowners as they wanted to keep thier homes, not only to live in but to preserve their equity. Now that's changed. Many people are paying their credit cards first since they have no equity in their homes with prices down. So they're willing to let their homes go into foreclosure proceedings because selling the house would only increase their losses. The foreclosure can only wipe out their equity. Selling a home at a loss greater than the equity would leave the homeowner obligated to pay off the difference between the mortgage and the sales price. Consumers are doing what makes the most sense.
How to get jobs? That's the question everyone is trying to answer. Simply lending money to a business isn't the answer since many businesses aren't seeing demand for their products or services. Hiring more people only to let them go in a month or two doesn't work. And having the government pay people for projects that have no economic benefit is only a short term solution.
What is really needed is specific training for jobs that are available. Many high tech firms need engineers, programmers, and sales people. If you've worked in a factory until now, that's a tough switch to make. But that's reality. People have to go where the jobs are and have to be educated for many of the jobs in the new economy. That means going back to school. Not easily done, especially with a family and no background in areas where the job growth is.
More jobs come from more demand. Manufacturers like Caterpillar see robust sales globally as emerging economies need infrastructure. When U.S. companies make a better product at a competitive price, consumers, whether they're individuals or corporations, buy them. Cat obviously makes a better product. Domestic car makers are joining those ranks after years of complacency, GM, Ford, and Chrysler (now owned by Fiat) are finally building very good cars that are taking back market share from Toyota and other imports. American management needs to make the commitment to be the best. When that happens, more workers are needed as more products are sold. Look at IBM, Apple, Microsoft, Google as examples.
The housing market is in the depths of a depression, not a recession. Homebuilders are seeing little demand and many are barely hanging on. Competition from existing homes is brutal and will get worse. But there is some hope. More jobs are evident (see auto manufacturers). Unemployment is down. So are interest rates, another positive factor for home sales. They will have to stay low for housing to really recover. But jobs aren't as plentiful as needed to get housing off its trough. As long as there are more foreclosures added to an already large inventory, housing will stay a problem. The only solution is to have more jobs, and the confidence to know the job will be there in a year or more to make a commitment to buy a home.
- Ted Allrich
May 24, 2011
With inflation gone and homes now seen as they should be: places to live, the housing market has been in a slump for at least three years. At the beginning of each year, almost everyone expects this year to be the rebound, the one where prices start to move higher. Here's the reality: this ain't the year. Maybe next year isn't either. The reason: supply and demand.
The supply is heavy. According to RealtyTrac, foreclosures have sent 872,000 homes to the largest U.S. banks and mortgage lenders, almost double the number of four years ago. The pipeline for more foreclosures is even more robust. The company predicts several million more homes will find a bank owner over the next few years. That means more homes for sale on top of homes that will normally come from people who want to or have to move. That means lower home values to clear out inventories. Moody's thinks that translates into another 5% drop by the end of this year with a hope of some increase in prices next year. But if foreclosures accelerate, that may be optimistic.
What can change this gloomy scenario? Jobs, jobs and more jobs. Foreclosures don't happen when people can afford to pay their mortgages. In fact, up until this year, mortgages were always the highest priority for homeowners as they wanted to keep thier homes, not only to live in but to preserve their equity. Now that's changed. Many people are paying their credit cards first since they have no equity in their homes with prices down. So they're willing to let their homes go into foreclosure proceedings because selling the house would only increase their losses. The foreclosure can only wipe out their equity. Selling a home at a loss greater than the equity would leave the homeowner obligated to pay off the difference between the mortgage and the sales price. Consumers are doing what makes the most sense.
How to get jobs? That's the question everyone is trying to answer. Simply lending money to a business isn't the answer since many businesses aren't seeing demand for their products or services. Hiring more people only to let them go in a month or two doesn't work. And having the government pay people for projects that have no economic benefit is only a short term solution.
What is really needed is specific training for jobs that are available. Many high tech firms need engineers, programmers, and sales people. If you've worked in a factory until now, that's a tough switch to make. But that's reality. People have to go where the jobs are and have to be educated for many of the jobs in the new economy. That means going back to school. Not easily done, especially with a family and no background in areas where the job growth is.
More jobs come from more demand. Manufacturers like Caterpillar see robust sales globally as emerging economies need infrastructure. When U.S. companies make a better product at a competitive price, consumers, whether they're individuals or corporations, buy them. Cat obviously makes a better product. Domestic car makers are joining those ranks after years of complacency, GM, Ford, and Chrysler (now owned by Fiat) are finally building very good cars that are taking back market share from Toyota and other imports. American management needs to make the commitment to be the best. When that happens, more workers are needed as more products are sold. Look at IBM, Apple, Microsoft, Google as examples.
The housing market is in the depths of a depression, not a recession. Homebuilders are seeing little demand and many are barely hanging on. Competition from existing homes is brutal and will get worse. But there is some hope. More jobs are evident (see auto manufacturers). Unemployment is down. So are interest rates, another positive factor for home sales. They will have to stay low for housing to really recover. But jobs aren't as plentiful as needed to get housing off its trough. As long as there are more foreclosures added to an already large inventory, housing will stay a problem. The only solution is to have more jobs, and the confidence to know the job will be there in a year or more to make a commitment to buy a home.
- Ted Allrich
May 24, 2011
Read more: http://community.nasdaq.com/News/2011-05/housing-a-reality-check.aspx?storyid=77251#ixzz1NINgkcpU
