The Housing Market - Up, Down or Sideways?

Veteran real estate industry analyst, Walter Hall, Chairman of HouseSavvy, recently updated his analysis of the national real estate market. Following is a summary of his analysis. Contact Mr. Hall at whall@housesavvy.com or call 781-659-0404.
By: PR First
 
March 9, 2011 - PRLog -- "Serious home sellers and buyers should do themselves a favor and use this as a check list to determine what kind of market area they live in or would like to live in – before they start the process."

UP, DOWN and SIDEWAYS: The 20 top foreclosure areas – plus others with high unemployment and more than average number of foreclosures - are presently “Down” and will likely stay that way for some period of time. However, the majority of real estate markets throughout the country did not experience “red hot” price-run-up status during the period 1998 – 2006 and consequently will most likely enjoy an “Up” or “Sideways” trend in the years ahead.  A good example is the Greater Boston Market, made up of the 167 cities and towns surrounding Boston. In my experience the best single indicator of the overall health of any given real estate market is the supply of unsold listings expressed in months. A six month supply is a good indication of a “Balanced Market” with sellers and buyers about equal and home values holding steady.  The Greater Boston Market started the year 2010 with a 6.89 month supply of unsold listings and ended the year with a 6.72 month supply. It started the year with an average sale price of $414,850 and ended the year at $408,632.

This key factor (Supply of Unsold Listings) is the result of a number of related activities and trends:
•     Prior market activity, such as rapid increase in demand or supply
•     Vacancy rates (best source: Census Bureau)
•     Sale activity (best source: local Realtor/MLS Data)
•     Home price trend (local Realtor/MLS Data)
•     Unemployment rates (Bureau of Labor Statistics)
•     Population change (Census Bureau)
•     Foreclosure rates (RealtyTrac)
•     Building permits (Census Bureau)


THE “DOWN” MARKETS – TOUGH CHOICES: The key question appears to be – how much of a drag on the housing market recovery are the “Down” Markets?  What percentage of the overall market do they represent? Based on my research, contacts and experience, my best estimate is in the range of 20%. In my opinion, that is a drag – but not an insurmountable one.

Here’s the choices: (1) should we focus on reviving the housing market by concentrating on certain hardest hit areas within the 20% group – knowing that some of these areas are in such bad shape (all or most of the factors cited above are negative) that the cost/benefit is just not there at the present time; OR (2) eliminate all artificial government supports and let normal market factors establish a bottom and subsequent recovery of the housing market?  I’d try choice #1 first – but on a limited test basis. Based on my experience working with leading real estate firms throughout the country, I would pick one distressed market area as a test and work with a leading real estate firm (or firms) in that area to analyze the market and determine what it would take to get unsold home inventory levels to the six month “Balanced Market” level, that is, balance the supply and demand to bottom out the market. If the test proved positive, it could be taken into other distressed market areas that had a good possibility of turning around.  

THE FACTS - at the end of 2010 the overall national real estate picture was pretty grim:
•     10.7 million homes with mortgages were “under water” – that is, their mortgages exceeded the value of their homes (source: First American CoreLogic);
•     Another 2.3 million homes were approaching negative equity (same source);
•     Government programs designed to help homeowners stay out of foreclosure failed to help many do so and half of those who were helped went back into default;
•     Home prices nationally were down more than 31% from the 2006 peak, including a 4.1% drop in 2010 (source: Standard and Poor’s Case/Schiller Index);
•     Near the end of 2010 there was a 10.1 month supply of unsold listings nationally, up from 7.2 months a year earlier – an increase of 29% year-to-year. A very negative trend line. Sales year-to-year were down 25% -from 419,000 in November of 2009 to 315,000 in November 2010 (source: National Association of Realtors).
•     Throughout the country, one out of every 46 mortgages was in foreclosure (source: RealtyTrac).
•     Of the top 20 markets with the most foreclosures, Florida led this group with nine market areas, including Cape Coral, Miami, and Orlando, followed by California with seven such markets, including Modesto, Riverside, Stockton, and Sacramento. Nevada had two such markets, Las Vegas and Reno, and Arizona had one, Phoenix. (Source: RealtyTrac).
•     It’s important to point out what these market areas all have in common, i.e. they were all “red hot” market areas during the period from 1998 to 2006, with rapid growth, excessive new construction, easy cheap credit and an overall speculative fever, such as the belief that you could buy a house today and “flip it” tomorrow for a good profit.  After 40 years working in the national real estate market, one of the key lessons I’ve learned is that what goes up fast comes down hard and fast – equal and opposite.

HouseSavvy maintains corporate headquarters at 683 Main Street, Norwell, MA 02061. www.housesavvy.com
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