Dec262011
Housing price bottom delayed to at least 2013?
I am not the only market observer who has come to this conclusion.
Real estate recovery in limbo until 2013, experts say
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.
“Nobody with any credibility was calling the bottom in 2012, and anyone who did no longer has any credibility.”
That would be me. I have been calling the bottom in nominal dollars to be in the 4th quarter of 2012, and I made that call in 2005 when we sold our home. Personally I think I have quite a bit of credibility, and I stand by my original call until proven wrong. I also said the bottom in real dollars will not come for another 5 or ten years after the bottom in nominal dollars, and I still stand by that call.
On credibility, I called the insolvency of the subprime mortgage brokers and most of the large banks. I called the increase in the dollar price of gold and silver and oil. I called the failure of derivatives, specifically CDOs and interest rate swaps. The jury is still out on interest rate swaps.
Your call on the bottom in real dollars will likely come true. Any appreciation in real estate will be offset by losses in buying power due to inflation. We won’t know if the 4th quarter of 2012 was the bottom until the 4th quarter of 2013 after next year’s spring rally. If you’re off by a year or two, it won’t make you as wrong as the realtors who call the bottom every year. You were certainly right about the collapse.
Speaking of bad calls……
OCR blogs; conversion to comments only via facebook format.
IMO, they will either change that back, or the conversation will completely die. Who wants to pollute their Facebook stream with random comments on blogs?
What grown man is even on Facebook? Unless you are trying to sell something or are single I see no other use for it. Leave it to women, children, gossips, perverts and the lonely.
If we are no where near the bottom in nominal, and especially inflation adjusted
dollars, then: in a rational market, no one would buy for a few weeks, the market would plummet and bottom, and then there would be a net adjusted market. That happens in the commodity grain markets when a large crop is first reported or other market changing news. Yet houses are a commodity and this isn’t what has happened for the last five years in the housing market. Even if everyone knows, as they must, that housing hasn’t bottomed, people are buying every day. The realtors are still listing and selling four million homes a year and more. That’s ten thousand homes a day plus, each day of the year. That makes utterly no sense. What ever is motivating people to buy in a market that is sinking without view of a leveling out, and why doesn’t it level out if rational people are setting rational prices? Yet everyone who bought in Vegas or Atlanta or Miami for the last five years has lost money unless they were a very good flipper…rare. It mystifies me; madness and delusions of crowdthink? Or mass misperception of what a market might do? My own belief is the compulsion to “own” a home, right now, right here, overrides all sense of caution in almost all younger people.
From what I have observed, people buy when they are emotionally ready to buy regardless of the market. Many people will look for rational justifications for what they did, and many will cling on to the bottom calling of realtors because it’s what they want to hear. Homebuying is seldom rational, so you see irrational people using flimsy justifications for an emotional decision. I clearly and loudly told people not to buy for five years, and many people who read my words bought anyway. Now I tell people to buy if the cost is below rental parity and they can stomach further declines. At least those people know what they are getting into.