Wednesday, September 2, 2009

Housing…Is The Worst Finally Over?

Is the housing bust over?

Expect many conflicting news reports over the next few months about this topic. THE most important issues facing housing are the simple fact that the banks are ‘holding onto’ 5,000,000 homes that will be listed (as REOs). How big is that? NATIONALLY, right now there are roughly 4,000,000 homes for sale. Yes, you read that correctly…the number of homes for sale is going to more thna double.

Next, add the expected rising defaults due to the ALT-As resetting….the effects of economy…..and the big one…Commercial Real Estate. The FDIC has 100’s of banks on their ‘Watch Lists’. Starting late this month look for more reports on bank failures due to commercial loan defaults. Our commercial broker coaching clients have been telling us that the commercial problem is going to be far bigger…far more significant than what is being reported.

Bottom line, be prepared.

First some good news:

Home starts have risen for five straight months, while sales of new homes recently hit their highest level since last September. Prices are up as well: the Case-Shiller index of national house prices rose 2.9% in the second quarter, ending a three-year decline.

These signs — as well as anecdotal reports about house shoppers growing more willing to write a deposit check — have executives at homebuilding firms declaring the worst is over.

“We believe declining cancellations and more solid demand indicate that the housing market is stabilizing,” Toll Brothers chief executive officer Bob Toll said this month in a conference call with investors and analysts.

And now, the bad news:

Housing boosters have forecast turnarounds repeatedly since the market peaked in 2006, only to be proved wrong by plunging prices. And skeptics say they’re wrong again now.

They argue that a deeply indebted consumer, a weak job market, expiring incentives and rising foreclosures spell a quick end to any housing rebound.

“We’re entering the phase where the homeowner has to earn his way out of this mess,” said Mark Hanson, who runs a California real estate research firm. “This summer is shaping up as the gateway into the next move down.”

Sales shift
Hanson attributes the much-ballyhooed recent house price gains to a shift in the types of properties changing hands. Earlier this year, as many as half of all transactions nationally were resales of foreclosed properties, largely at low prices.

Since then, so-called organic sales (those not involving distressed properties) have risen while foreclosure sales have remained stable. This improved mix — together with cheap financing and a couple of popular tax incentives — helped to revive prices in some hard-hit areas.

But with schools opening up again and the summer home-selling season winding down, sales by nondistressed sellers are likely to fall in coming months, Hanson said.

Adding to the pressure on prices, the end is in sight (or already here) for some popular housing subsidies. An $8,000 federal tax credit for first-time home buyers is due to sunset in December.Prime problems

Another concern is that the housing woes appear to be spreading well beyond the questionable borrowers who were at the center of the first stage of the financial crisis.

Reposted from the campus blog, Tim Harris,

No comments: