Summer Home Sales Stall Pending US Economic Choices

The pending inevitable rise in home mortgage rates due to the lack of leadership with any guts in American Politics is stalling the summer home sales for all but the “Monopoly Money” buyers – those who are riding a small tech-bubble in Silicon Valley. As the gaps widens across America between the “haves” and the “have not’s”, I see more and more distressed properties hitting an already stressed housing market. This cycle continues to drive home values into the dirt, and creates amazing pressures on the homes that are sold without being under threat of foreclosure. Simply put, those highly qualified buyers flush with cash are not willing nor interested in dealing with the insanity of short sales or REO’s, and when they find a home on the market that is a conventional sale, with no bank interference, they are ready and willing to pay a PREMIUM for the opportunity to purchase the home under relatively hassle-free circumstances. Can you blame them?

As the news media wails the threat of pending financial and social collapse under the weight of our governments failed economic policies, the average US family simply cannot take the chance of buying a home when all around them there is real and obvious threat that the housing market will continue to correct to even lower values in the next 12 – 18 months. In a recent article by Bloomberg Businessweek Senior Writer Roben Farzad highlighting what he referred to as the Housing Horror Show, he wrote the following:

“You might be tempted to believe that after four years of brutal declines in home prices, the worst of the crisis is over. The Standard & Poor’s/Case-Shiller 20-city index of prices has fallen back to where it was in 2003. Housing prices in Phoenix are at 2000 levels, and Las Vegas is revisiting 1999. Lower prices have made homes more affordable than they’ve been in a generation, and sales have gone up in six of the past nine months. “It’s very unlikely that we will see a significant further decline” in prices, Housing and Urban Development Secretary Shaun Donovan said in a July 3 appearance on CNN (TWX). “The real question is, when will we start to see sustainable increases? Some think it will be as early as the end of this summer or this fall.”

Doug Ramsey of Minneapolis investment firm Leuthold Group is a student of asset bubbles, from tech stocks in the late ’90s to commodities in the late ’70s and railroads in the 19th century. His outlook is very different from the HUD Secretary’s. Ramsey calculates that single-family housing starts would have to soar an unprecedented 60 percent to 70 percent from their current half-century low of a 419,000 annual rate just to hit the average low of the past six housing busts since 1960 (650,000 to 700,000).

Ramsey says every housing statistic he tracks, including new and existing home prices and the performance of homebuilding stocks, has so far matched the pattern of prices after the bursting of other bubbles, including the Dow Jones industrial average following the crash of 1929 and Japan’s Nikkei after its 1989 peak. It starts with a steep decline lasting three or four years, followed by a brief rally that ends in years of stagnation. The Dow took 35 years to return to pre-crash levels. The Nikkei trades at less than a third of where it peaked 22 years ago. “The housing decline,” he says, “will be a long, multiyear process, and the multiplier effect across the economy will be enormous.”

Others are equally gloomy. “It’s still a vicious cycle of foreclosures, prices falling, and buyers remaining on the sidelines,” says Jonathan Smoke, head of research for Hanley Wood, a housing data company. With the homeownership rate possibly headed to its pre-bubble level of 64 percent from 69 percent at the peak, Smoke calculates that the nation needs 1.6 million fewer homes that it now has. “We’ve gone through a period when we should have been tearing down houses,” he says. “The supply of total housing stock is beyond what is necessary.”

Scott Simon, a portfolio manager who heads real estate analysis for bond giant Pimco, says because this housing bust is so much worse than previous ones, it’s hard to tell when it will end. “There are all these things going on that we have never seen before,” he says. “No one knows how or what to model.”

Simon has been traveling the country with a 28-page PowerPoint presentation for clients that illustrates the dire state of today’s housing market. Three of 10 homes, he notes, are now sold for a loss. American homeowners have equity (market value minus mortgage debt) equal to 38 percent of their homes’ worth, down a third since 2005 and half what it was in 1950. A lot of the decline is attributable to people who have negative equity—they owe more on their mortgages than their homes are worth.

Simon also points to the affordability index, which measures the ability of a family with the median national income to buy a median-price home at current mortgage rates. The index is near an all-time high and double its level in 2006 at the peak of the bubble—meaning buyers should find many more homes within their budgets. “I would never have believed this index could get so high,” he says. A rise in affordability should have spurred purchases, boosting prices and keeping a lid on the index. “What this instead means to me is that the credit is not available to most people,” he says. “Houses aren’t cheap if you can’t get the loan.” Simon worries that the problem will get worse in October, when Fannie Mae (FNMA), Freddie Mac (FMCC), and the Federal Housing Administration drop the maximum mortgage they will buy to $625,000 from $729,750 as a temporary increase expires.

The crux of Simon’s analysis is that the loose lending practices seen during the housing bubble allowed 5 million renters to become homeowners, and that the market is in the protracted process of evicting this group. He believes housing prices will decline 6 percent to 8 percent nationally, with 6 million to 7 million more foreclosures yet to come.

If these predictions are right, the economy will be missing a key driving force for years—and the nation will keep paying the price for what Ramsey calls the “illusory prosperity” of the housing boom. “Think about local tax revenues—what the housing bubble contributed to coffers across the country,” he says. “The ripple effect for the economy was enormous: washers, dryers, carpeting, construction jobs.” The housing wealth that has now evaporated gave Americans false expectations about economic growth and rising standards of living. Asks Ramsey: “What was real and what was never meant to be?”

Clearly there are still plenty of homes for sale, and buyers who can and will purchase them. But in my experience, we are seeing a fundamental and permanent change in the dynamics of the US Housing Market, and the effect will have further staggering consequences moving forward that will impact our society for the next 30-40 years! Interest rates are going to go up… there is no way around it. And then, all bets are off…

Spring Housing Sales were brisk, but the season too short, say local Realtors in California.

Now that Memorial Day has passed, and graduations are finishing up, we are entering the doldrums of Summer, which while not as seasonally depressed for real estate sales as the winter months, is still not on par with the selling and buying flurry we have just come out of. I recently found an excellent article on the housing market, the continued economic stagnation (Read Triple-Dip Recession) and the long lasting effects our high unemployment, massive debt, deflated home values and underwater mortgages is having on the American Family and the American Marriage.

I have reposted this article from DivorceRate2011.com, and believe you will find some of it if not all very interesting:

“With the seasonal high in the real estate market coming to an end, and the economy no better that it was a year ago for most Americans, the flurry of divorce filings that were funded by the cash proceeds of couples who sold their homes and are buying their way out of a bad marriage is coming to a end for 2011.

Real Estate sales peak in the spring, and then taper off with Graduations, Memorial Day trips and as the Summer drags on and people become focused on vacations, home improvement and the numerous distractions of the long hot summer days. And there has been a long pent up desire for couples to get divorced, fueled by the increase in financial pressures on marriages in this economy, the now “triple dip” Recession! With so many American’s under such heavy financial burden and debt, the stress of keeping a marriage and family together is more than most can handle. The problem is that it is this same financial stress that is killing the marriage that is keeping the couples from filing for a divorce. Simply put – they cannot afford the divorce lawyers, attorneys and the two households. Hell, most can’t afford the one miserable household they are in!

After surviving a lackluster Holiday season, there was much anticipation and media supporting the current political agenda that recovery was solid and financial miracles were about to occur. And we all know that has not happened. The Real Estate market is still miserably slow, with inventory levels quoted by industry “Outsiders” as hovering around the 9 month levels (That means that the number of homes offered for sale, with the current rate of sale, would take about 9 months to sell them all). The healthy figure used for comparison is around 6 months inventory. Sadly, these latest figures DO NOT ACCOUNT for the SHADOW INVENTORY, such as pending foreclosures, short sales, REO’s and other “Off the books” real estate that is just sitting in inventory, not being actively marketed or listed, and waiting for the bull-dozer of the Miraculous Recovery we have all been promised by Obama!

In reality, there are at least 36 months of housing inventory and the buyers are few and far between. In fact, within the next 12 months, over 50% of all home sales in America will be short sales. And according to Core Logic, that projection may be conservative in some states. Some of the worst hit states will suffer even more, with over half of all home sales in Michigan (62.8%), Nevada (60.3%), and Arizona (51.5%) being distressed sales – Foreclosures, Short Sales or REO’s.

Rounding out the top 10 states for distressed home sales were California, Utah, Idaho, Georgia, Florida, Colorado, and Hawaii.

So how does the real estate market effect the divorce rate? Simple. Divorce filings were up with the housing market, because couples were able to remove one of the factors keeping them from filing for divorce – their home and or mortgage. IF, upon selling their home, a married couple was able to realize a profit, an abnormally high percentage of them are using part of those proceeds to file for divorce.

And now that the seasonally adjusted REAL ESTATE SELLING AND BUYING high months are behind us, we are seeing divorce filings taper off. But make no mistake, the demand is still there, simmering just below the flotsam of financial decay and lost consumer confidence that has a stranglehold on American families, doubting that there is any real recovery coming anytime soon.

Recovery in the housing market continues to stumble along like a drunken sailer despite efforts of local and national media trying to sell a jaded American public on the “recovery”. Clearly, if you own a home… you know that the value of your asset has not made any magic increase in almost 7 years. And gains are not close on the horizon.

In a recent article from Lowes/Inman News, here is what John Burns had to say about Why the Housing Market is not Recovering:

“For nearly two years, corporate profits have been surging, gross domestic product has been growing, and the majority of the key indicators we track have been moving in the right direction. Yet, home sales have remained in the dumps.

The indicators that hit closest to home (pun intended) are the ones that housing needs the most. These are the day-to-day realities that keep us feeling glum:

Job growth is slow

• Job growth is back, but it has lagged corporate profits as corporations find ways to do more with less. Worker productivity has increased eight of the last nine quarters, which is great for companies but not so great for the unemployed.
• Even with recent job growth, we still have 7 million fewer people employed today than at the peak in 2008, and the unemployment rate remains high at 9 percent officially, but a whopping total of 15.9 percent are underemployed or have given up their search.

We’re in a “wage-less” recovery

• The median income has grown marginally in the last two quarters, but that still leaves us 6 percent below where we were in 2008.
• Inflation has been squeezing our bottom line since late last year, with gas prices up 38 percent from one year ago (according to AAA).

Home values are declining … again

• Home prices are 31 percent below their peak in 2006 and are heading lower in many ZIP codes, which is the result of having 23 percent of all mortgages valued at more than the house value.

This all contributes to the lack of consumer confidence, especially when it comes to buying a house. While confidence has improved, a confidence level of 65 is 30 points below its 44-year historical average.

Suffice it to say that moving out of the seasonally adjusted HIGH selling season and into the doldrums of summer, it is looking like 2011 will not be much different from the past several years in the California Housing Market. Real estate remains a good value, but consider holding it for not less than 15 years if you wish to see returns that warrant the expense in real dollars to acquire. Tax considerations not withstanding.

Short Sale with a great view of San Francisco Bay! Offered at $729,000!

Relax on your deck and watch the lights of the Bay come on at night all for your pleasure. You will never get tired of the view from the 2-story Emerald Hills hide-away. 3 Bedroom, 2 bath home has some nice upgrades for it’s age, newer roof and carpet. Decks need some work, but this home is ready for your family. Needs TLC and deck work.

For more information or details on this home, please call Michael Thomas, Realtor at (650) 206-9225

Just listed – Short Sale in Woodside, CA.

Located on over 1.25 acres of pristine old growth Redwood forest overlooking Woodside, with glimpses of the Bay, this 85 year old Log Cabin is in need of some help. But the potential is immense! With 3 bedrooms, plus a bonus room, it is big enough for a family with over 1,920 sq. ft of indoor living space. Or separate the downstairs from the upstairs and create a Retreat or B&B, renting out the downstairs.

With meandering quarry stone and moss covered walkways terraced through the property, there are great locations for photos and weddings, meditation and just reading a book. This unique property just needs a new owner with a vision and the ability to bring out the best in this home. With hardwood floors, a massive old stone fireplace, Cedar Beam vaulted living room with floor to ceiling windows overlooking the massive deck, one can spend hours watching the world go by through a canopy of mature Coastal Redwoods.

Exterior finished in Redwood Log sections and River Cobble. Garage was rebuilt and is to current construction standards. Jacuzzi Hot tub is below the Garage, in a combo room that feature laundry facilities and a shower for rinsing after a relaxing night in the hot tub.

Offered as a Short Sale, this property is subject to bank acceptance. Priced a roughly land value, there is only upside to this property. Previously this property was foreclosed on and offered for sale at auction, but due to liens and taxes owed, it was and is not reasonable UNLESS the seller can and does clear the liens. Seller is willing to clear the liens on this property so that the buyer only has the purchase price to negotiate with the bank, making the asking price

the true acquisition price for a small piece of heaven.

Offered as a Short Sale at $729,000.00

Call 650-206-9225 for a showing today!

CONTACT ME HERE

As predicted, the increase in short sales and foreclosures is bringing to the market a new wave of home deals for the buyers ready and willing to have the patience to see the process through to the end. And with no end in sight to the record unemployment nor to the kind of long term sustained growth in the economy necessary to overcome the deficits, those shopping for homes in this state and others are finding the lure and excitement of a great deal tempered with the demands and delays of the short sale process.

With over 8 Million homes qualified for federal and state assistance on their mortgages via the economic recovery efforts of the Feds, in the past three years only 200,000 homes have been helped with loan modifications – JUST 2.5%!!! At that rate is will take us another 107 years to help the remaining families and home owners in need…  And now we can look forward to our Federal Government to help us with our Health Care??? Please…..

The one saving grace in this situation is that those home owners I am working with listing their homes NOT IN SHORT SALE have an unexpected edge in the market that did not exist two or three years ago. And again we have the Federal Bailout Programs to thank. Because buyers, sellers, agents and lenders all know the difficulties in consummating a short sale – Highly qualified and motivated buyers who understand the risk of waiting on a “good deal” short sale and the corresponding expected mortgage rate increase that could negate much of their “Deal” when they close at a higher rate  are now demanding that agents only show them non-distressed homes for sale.

And now there are more buyers than homes for sale, thus many homes are selling for more than ask with multiple offers.

So – if you are a seller who does not have to sell, and you have good credit, and some cash on hand, and you don’t mind placing your belongings in storage for a while and live in a rental, then you can take advantage of the market in this way – List your home with me and let’s sell it in a sellers market, then go shopping for a short sale and low-ball the offer this summer and fall when everyone is going to be all tied up in the mid-term elections! Foreclosures and Short sales will be rampant again, we can wait out the banks, and still get a good deal as I suspect the Feds will be making an effort to shore up the interest rates again to keep them below 6%!

But I warn you, this is not a game for the weak of heart nor the impatient of soul. And this is EXACTLY why you need my assistance to sell your home for the highest price, and to negotiate your lowest possible price on your next home! It takes a seasoned expert negotiator to keep both processes on track to a positive and rewarding outcome!

Michael Thomas
Realtor, E-Pro
Keller Williams Realty
Palo Alto, CA
Menlo Park, CA

650-206-9225