Dec262011

Housing price bottom delayed to at least 2013?

I am not the only market observer who has come to this conclusion.robbed

Real estate recovery in limbo until 2013, experts say

By Martha C. White — December 23, 2011

This year was supposed to be the bottom for the housing market and 2012 was supposed to mark the turnaround.

Really? Is that on the authority of realtors who call the bottom every year? Nobody with any credibility was calling the bottom in 2012, and anyone who did no longer has any credibility.

In reality, even the improvements sound like bad news, and some forecasters are saying we’ll have another year of gloom before the clouds break.

Yes, the forecasters who have a clue what’s really going on are looking at the buildup of inventory, weak sales, increasing delinquencies and forecasting continued falling prices.

“It’s unlikely prices will rise next year in most markets,” said Jed Kolko, chief economist at real estate information site Trulia. “By that measure most local markets will not recover next year, but prices are only one measure of how the housing market is doing.”

While it’s true that price recovery is only one measure of the health of the housing market, it is the only one most loan owners care about. Sales volumes will likely increase in 2012, but that is going to come from investors buying low-priced houses.

American home values are likely to shed $681 billion this year, according to Zillow. That’s better than the $1.1 trillion lost in 2010, but hardly worth breaking out the bubbly.

In a nutshell, that’s the problem with the housing market today. Even the good news is relative, and a true recovery is still at least a few quarters away.

[T]he unabsorbed pool of housing supply, dragging levels of consumer confidence, high unemployment and negative equity will continue to put downward pressure on the housing market, pushing our expectation for a potential recovery into late 2012 or early 2013,” Stan Humphries, chief economist at real estate research company Zillow Inc., said in a statement.

Data company CoreLogic estimates there is a “shadow inventory” of 1.6 million homes, which is the biggest drag on prices.

Basically, supply of motivated sellers is going to overwhelm the weakened demand. No matter how you describe it, aggressive supply meeting weak demand results in lower prices.

“Foreclosures lead to very motivated sellers, which will have a destabilizing effect on prices,” said Nicolas Retsinas, professor of real estate at Harvard Business School. The sluggish pace of foreclosures — hampered by the robo-signing scandal, ongoing investigations and litigation — have stalled the movement of those homes back into the market.

None of the market props or processing delays have helped the market bottom. In fact, these circumstances have done nothing other than delay the bottom.

Data on the number of sales is more promising.

In November, sales of single-family homes hit a seven-month high. Sales rose 1.6 percent for the month, and 9.8 percent over the past 12 months.

But these figures are climbing back from abysmal depths; the National Association of Realtors thjs week lowered its figures on the number of homes sold between 2007 and 2010 by nearly 3 million, down to 17.7 million.

The silver lining in the NAr revisions is that sales comparisons now look better. Volume is improving which is to be expected with lower prices. Further increases in sales volumes are required to clear out the supply.

“With a highly leveraged housing bust, you haven’t seen that increase in residential investment in spite of low interest rates,” said Ted Gayer, a senior fellow at Brookings Institution.

Slack demand for existing homes also means fewer buyers for new homes. Home building has traditionally been the tow truck that pulls the economy out of the mud, but with so many empty houses and so few people moving into them, that’s not the case this time around.

With an entire industry sitting on the sidelines, our economy continues to suffer. Employment in homebuilding and related industries is not improving much.

“It’s not a demand problem,” Gayer said. “When you have such a huge excess supply it doesn’t really get at the problem.”

Even though interest rates are at record lows, a tight credit market is keeping people who do want to buy on the sidelines, said Retsinas. Lower rates of household formation — fewer immigrants and more adult children still living with their parents — also quash demand.

The tight credit meme is consistently reported incorrectly. While it’s true that people who want to buy can’t, it’s only the people who want to buy who aren’t qualified that are being denied. They should be denied credit. They won’t pay it back. We have credit standards to establish who will repay loans, not to see who wants a home.

Despite these headwinds, there are glimmers of hope.

Have you noticed that hope only comes in glimmers? The light at the end of the tunnel is not very clear or bright.

Kolko said an uptick in multifamily construction and remodeling, while not as strong as the traditional home building engine, will still provide construction-sector jobs in the near term. Longer term, more multifamily dwellings on the market will alleviate the increase in rents happening now, potentially giving people more breathing room to save for a home purchase in the future.

I can assure you, the people developing multifamily right now are not anticipating a weakening in rents. Further, weakening rents will keep more buyers on the sidelines because it impacts rental parity. Without the pressure of increasing rent, many potential buyers will simply wait and continue to rent.

And a few parts of the country might catch a break next year. Kolko said California’s Silicon Valley, along with much of Texas and New England, are starting to recover due to their employment levels or because the housing bubble wasn’t as pronounced there in the first place. The rest of us will just have to hope for better luck in ’13.

The housing bubble was not as pronounced in California’s Silicon Valley? LOL! Failure to deflate is not a sign that prices didn’t bubble.

The housing market will likely not bottom in 2012. Fall 2012 or the winter of 2013 perhaps, but the spring rally of 2012 — if we get one — will not mark the bottom of the housing bust.