Consumer Confidence fell this month for the first time in three months, reflecting Americans’ concern for the economy, housing, and the financial system.
The reading isn’t much of a surprise given our collective exposure to a near-constant stream of negative news. Before long, the reports become a self-fulfilling prophecy.
Despite falling confidence, however, the housing industry appears to be reviving. Sales of existing homes are on the rise and an increasing number of homes are under contract to sell. And, if these statistics seem out of place, consider the external forces that are accompanying this “down” economy:
- In some markets, home values have plummeted to early-2000 levels
- Government intervention has brought mortgage rates to near-5 percent
- Congress is pledging key support to housing and mortgage markets
These points can’t be captured in confidence surveys which, by comparison, ignore facts and focus on Big Picture behavioral questions like “Do you think you’ll be better off a year from now?” and “What’s your attitude toward buying major household items?”. It’s useful information for economists, but not so much for home buyers.
Anecdotally, a lot of the country’s housing markets have already started their recovery. Couple that with the natural momentum of Spring Buying and the stimulus package’s proposed first-time home buyer tax credit and you can clearly see the disconnect.
Just because confidence is down doesn’t mean that home prices will be, too.
SECURE & CONFIDENTIAL
9 Comments So Far»
You know Bryan, this is why I DO NOT WATCH TV!!
Go out there and get some!
Unfortunately the tax credit for first time home buyers may be out of the package according to what I was listening to this morning.
It is kind of hard to tell for sure as the bill has not been posted yet and no one claims to have actually read the entire bill. So it is still a bit of a guess who is right and what we are looking at.
I do keep hearing on the Saturday morning talk shows that there is little to no help for the housing market in the “stimulus” bill. While there is some talk of help in the next bill, (that is pretty bad, this one isn’t even signed and there is talk of the next bill), it appears there may be nothing in this one.
My bigger concern is the very large lack of credit available for home loans and most loans in general. There are no signs on the horizon this will change any time soon. Today the talk was being put out about a death spiral in the credit market. Grim and maybe grimmer ahead of us.
I would be cautious right now because it is common to see small upticks before the bottom drops out. With another 1.9 million foreclosure predicted for 2009 only 1.7 in 2008, I see the worst yet to come.
Now one good item of this uptick in homes under contract is most of these are foreclosure homes so maybe that is good for investors. If a person takes a smaller profit or can Lease Option investors may be able to profit from this latest trend.
I agree w/ Sternberg that the “big picture” cant be captured with broad based consumer confidence surveys however I differ w/ his generalization “the housing industry appears to be reviving” (Let’s not get the cart in front of the horse here Mr. Sternberg…respectfully)
Follow me here….The Spike of new loan apps reported a couple months ago was simply beacuse of a sizeable downtick in mortgage rates that have since risen again to low to mid 5’s, the subsequent spike in “pending sales & under contract homes” reported by Sternberg is meerely those apps contracting on property. In short, the revival Mr. Sternberg speaks of is due only to a momentary outside influence (low rates pulled buyers off the sidelines for a few weeks)
The reality is, we still have 12-18 months of bumpy road ahead. (Just my opinion)
On the bright side here’s the up to the minute FACTS about the Stim Plan as they relate to housing… (Encouraging stuff)
1) certain loan limits will be raised to $727,000 in high cost areas, 2) the tax credit will be raised to $8,000 with NO payback [a true credit], 3) the bill has over 50 billion in it for foreclosure mitigation, with Geitners Treasury plan signaling that the second half of TARP and TALF will be used to mitigate foreclosures through a government guarantee, drive down interest rates by buying another 200-300 billion of mortgage paper from the GSES’s thereby freeing them up to do the same with new mortgages, and Fannie has just agreed to lift the cap of 4 investment properties eligible for loans and raise it to 10.
Did ya catch that? 10 loans for properties now instead of just 4. RATES ARE GOING TO GO DOWN SOON (my guess 4.5)
Go buy something. HAHA
It’ll be 2010 b4 foreclosures start to subside and we see some relief of the downward pressure the insane amount of foreclosed homes are putting on resale home pricing which is what is really keeping Buyers on the sidelines. (Nobody wants a depreciating asset) That in conjunction with strict mortgage underwriting standards means far fewer Buyers…hence the clogged market we find ourselves in. When the rate of foreclosures begins to slow…make your moves.
(Again, respectfully Mr. Sternberg)
One statistic that sticks out: One out of every 9 homes in the USA is vacant. This is a huge backlog that includes not just foreclosures sitting empty but Investor property and owners living elsewhere. Does not include vacation homes. How long to work thru this? Well, since only 5% of people move in a year if nothing else came on market (not possible) it would take 2 years. But a lot more is in the pipeline. This is a USA wide average and your area may be in better shape, if not go to that area to invest.
I have to agree with Chris above about the stimulus package and what it means to the housing market. I get weekly updates from a Senetor in my state of Georgia and he states most recently that the proposed tax credit for first time buyers has been removed from the package. Couple that along with lenders being unwilling to release credit to buyers and we are in for a long downward spiral in the housing market. An inept, predominately democratic congress will likely run investors away and/or out of business in the foreseeable future. Only those with enormous reserves will benefit from this. The small guy (like myself) can only hope to get by in the mean (& lean) time by leasing out our inventory and wait patiently for the market to return to more normal standards. Therefore, I think Chris hit the nail on the head with his outlook.
Hi again all, just want to clear up a few items from my post. 8,000.00 tax cred (not to be paid back as was the case b4) IS IN THE LEGISLATION THAT IS ON THE PRESIDENTS DESK TO BE SIGNED THIS TUESDAY. (jb30506-the senator has to catch up his e-mail blasts… or maybe actually read the bill that was passed.)
As to lack of credit….thats a myth folks, all an end buyer needs is 3.5% down, clean-ish credit and a 600 fico for a FHA loan. Now with an investor being able to have 10 loans insted of 4 (with 25% down and 6 mo. reserves min., 720 fico) Im hunting short sales and foreclosures with deep discounts. (If an end Buyer cant get a FHA loan….they SHOULD be a renter)
In the end (to clarify my post from above) I too dont see any reason to get overly excited by Sterbergs observations of a mild and momentary spike in pending and U.C. properties because the cause of the spike has nothing to do with the REAL problem in 90% of the markets nationwide. (the problem being foreclosures causing downward pressure on resale, no resale, no move up/move down Buyers and more depreciation, which keeps most end Buyers on the sidelines…who will buy someting that will be worth less in a year….unless you can buy is at .50 on the dollar which directs all back to buying a foreclosure property) All this causes and will continue to add to clogged markets. We wont see sustained property appreciation in general until the tidal wave of foreclosures subsides and thats 18-24 months from now + another 6-9 months to begin clearing inventory.
Chris and Brian… All very good points.
I appreciate the viewpoints and the feedback.
The only way that I see that the market will absorb the excess inventory is for prices to level (and that wont really happen nationwide as a general rule until the mass foreclosures slow) and for financing to become “real”
Lets remenber… many of the folks that are out of work now will have lots of hoops to jump through to requalify to buy in this stricter financial market. If they can’t (and most won’t) then the answer is new buyers (FTHB).
Some form of incentive will have to materialize in the form of easier purchase money mortgage credit or ???. Even a FTHB Tax Credit is really just an inducement to purchase. Same as lower rates or down payment assistance. Call it what you will.
As in the late 80’s … I believe that the “time” is right when you see that the FTHB is being given greater incentives… greater that the cost of renting.
You are correct- The key as an investor IS- make your move when YOU think the time is right…if everyone is saying that it is “time” …it maybe too late.
Jack
JPETO’s post about the 9% vacancy caught my eye. Where did this stat come from? It certainly seems to me to be incorrect. That would equate to about 10 million vacant properties.
Hi Jack S,
Thank you for the comments. Not trying to be a wisenhiemer here but …isnt that basically what I said in the last paragraph of my post from 2-14? Reiterated on 2-15 (Bryan E. hasnt posted it yet, dont know why)
As to financing becomming “real” for FTHB (relating to the General Public) FHA, VA and USDA loans are REALLY easy to obtain, require very very little or no money down (100% financing on the USDA Rural development program for those that do not exceed 115% of the areas median income…here’s a link …http://www.rurdev.usda.gov/rhs/sfh/brief_rhguar.htm )..look to these as the meat and potatoes for not only FTHB (as you mentioned) but most move up/move down Buyers with less than 20% down.
Financing is out there and its easily obtained within a reasonably broad demographic, just a matter of educating the uninformed masses. I defer that task to you Mr. Sternberg
Totally agree w/ your comment about “if everyone is saying the time is right it may be too late” I’ll go 1 step further and say If everyone is saying the time is right…it DEFINITELY IS too late!
Ending w/ a quote: “Be fearful when others are greedy and greedy when others are fearful”
100 extra credit points to whoever knows who said that…should be an easy one.
B~
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