According to one economist, 6.5 million new households will have to be formed before the excess housing inventory in the country will be absorbed[1]. Brendan Lowney is a macroeconomist for Forest Economic Advisors in Massachusetts. He has estimated excess home inventories at 2.5 million, which is creating downward pressure on home prices and pushing more homes underwater. Lowey believes that the formation of an average 1.3 million new households per year will clear much of the excess inventory, and that this process will take about five years to complete. Only then, he says, will the housing recovery truly begin.
This paints a bleak picture for sellers for the next few years. As one Fox Business columnist put it, “[the] housing recovery begins when foreclosures turn to closings”[2]. Jay Butler, associate professor of real estate at Arizona State University, elaborated on that theme, pointing out that the key to the housing recovery is when “the housing market is driven by owner-occupants, not foreclosed properties. Other analysts add that jobs are the key, since high unemployment has made would-be homeowners reluctant to take on new payments – especially in a time when real estate is no longer perceived to be a “sure-fire” investment.
What do you think will be the key to the housing recovery? When do you think it will come?
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[1] http://www.dsnews.com/articles/inventory-overhang-means-65m-new-households-needed-2011-06-16
[2] http://www.foxbusiness.com/markets/2011/06/16/housing-recovery-begins-when-foreclosures-turn-to-closings/
Several keys to housing recovery: Banks stop pretending they don’t have huge shadow inventory. This means TRANSPARENCY, which means dropping the prices. Yes, this will mean another decline in property values, but it is inevitable, so let’s get on with it. The GSEs (Fannie and Freddie) need to reverse their policies which are biased against real estate investors. Investors buy many houses, where owner-occupants buy one or two. Investors are needed to buy and rehab properties so that they can go back on the market as sales or rentals. Real Estate agents also need to move into the 21st century and stop trying to control the market with overly high prices and (once again) fear of and bias against investors.
We need a conservative government to get in and streamline all of the lending regulations. Another way will be to offer citizenship to long term illegal residents that will buy a home. Finally in the streamlining of regulations get out of the way of investors. Make it easier for them to buy REO and short sales.
The key to housing recovery is GOOD jobs, not just jobs. 6.5M new households would be easy to create if the college grads, maiden aunts, and foreclosed families who’ve moved in with parents, children, siblings or even casual acquaintances could receive good jobs, pay off their debts, and begin to think anew about living the American dream–one house per nuclear family. However, we won’t get good jobs until we stop paying companies to outsource jobs, stop paying most of a company’s income to its top officers, stop allowing mergers into firms that not only become “too big to fail” but also have to lay off lots of staff to pay the costs (including commissions to Wall Street) of merging, and start educating people in the skills they need to return the US to a first world economy instead of one built on services and commodities. There’s plenty of work available in health care, tourism and foodlike substances (somebody is getting paid to create all those new flavors of potato chips and juices, and others will get paid to treat us for high cholesterol & obesity, but we should be designing and manufacturing things like subway cars and wind turbines that now come from Europe, and we should have a reward for people who figure out how we can economically make the stuff that somehow is cheaper to make in China and transport halfway around the world, such as coffee cups, souvenir spoons, and refrigerator magnets, to say nothing of Ipods, computers and televisions). Henry Ford knew he had to pay his workers enough for them to buy automobiles. Somehow our society has forgotten that–politicians think they will stifle the middle class if they raise taxes on people making more than $250K-$1M/year, when middle income is actually under $50K and falling.
So when will the recovery come? Sooner than you might think, and not because politicians wise up or people start making more money. No, I expect politicians to continue to be short-sighted know-nothings who, by pretending that global warming is a myth and continuing to fund tax expenditures for oil companies and coal mines and continuing to lay off goverment employees will contribute to weather that chews up more than 2.5 million homes in floods, tornadoes, fires, and associated disasters in only two or three years, forcing building boomlets in nearby neighborhoods that absorb some of the victims and in other neighborhoods where victims go to escape the type of disaster that set them on the road.
No one knows when the recovery happens because no one really knows how much foreclosed inventory currently exists. And no one knows what else will hit the pipeline over the next year or more. So all of these predictions seem to be useless. They are nothing more than a wild ass guess by some ivy tower economist.
There are two many variables to determine a specific time when the housing market will recover. Job shortage is a factor, but the bigger problem is that the servicing lenders still have too many deliquent properties that they are not actively foreclosing on or working out a solution on with homeowners.
I don’t know if anyone can give an accurate number on this, but many properties that I research have old lis pendens that were filed and they are just sitting in limbo, partially because of the attorney foreclosure mills that closed down after the process started. Then on top of that problem is the scam the servicing lenders are running called a “trial modification” on deliquent homeowners that where no written agreement exists, and the servicing lender turns the modification down at the end of the “trial” after monthly payments have been made.
Added to that we have an increasing trend of ‘strategic defaults”, where homeowners are watching the surrounding properties decline and they determine that they should no longer pay for a continuously depreciating asset, even though they can afford it.
To add the icing on the cake, mortage loans are getting much harder for the average Joe to obtain. Credit scores must be higher than ever at a time when sporadic unemployment is higher and many people get behind on their bills when they lose their job.
In the beginning I heard 3 years to recover, whispers went to 5, then 10, then generational, and now I sometimes here an expert state the N word of ‘never”.
I say “never say never”, but I think a very, very long time. My best guess is
20 to 25 years. When I became a short sale expert, I thought it was a short time niche, and now I have discovered it to be a full term career. Yay.
Recovery from the abyss of ruin is not going to come quickly or without more pain in my view. Too many of us in real estate are typical sales people…we want instant gratification and we’re frustrated when we don’t get it; eager to latch on to any good news or potential “lead” that will turn into a pan of gold. There is plenty of bad news to make excuses for the condition we’re in but…here’s the good news…we can do something about all of this if we have the courage and persistence to see something through…like tax reform. There is a piece of legislation on the table in both houses of Congress that would serve as a potential windfall for the next generation of homeowners, if we could get those in Congress to summon the courage to embrace and pass this incredibly well constructed reform called The Fair Tax. Start me up on energy next …not this time tho (:-)