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Posted by on May 21, 2012 in Market Conditions, Thinking of Buying?, Thinking of Selling? | 13 comments | Print Print

Real Recovery?

Reader RJ from CT pointed out this post by Chris, and he wondered the same:

http://christopherfountain.wordpress.com/2012/05/17/fools-rushing-in-or-a-genuine-market-recovery/

How can there be a real estate revival when the State of California has $875 Billion in debt and facing a $16 Billion budget deficit? 

The California legislature has been so dysfunctional for so long that they are ignored.  They don’t show any competence in solving the problems, and if they did, it wouldn’t involve much-higher taxes.  If there were massive cutbacks in government services, we’d survive.

There are still a slew of reasons not to buy (Afghanistan, Iran, Europe meltdown, American economy, artificial rates, etc.), so for those who want to use those to justify staying on the sidelines, feel free.  There will always be negativity, that is how this country rolls now.

Is it a genuine market recovery?

It is genuine, in the sense that it isn’t fueled by exotic financing.  Buyers have to qualify for their mortgage, and most are investing large down payments.

Is it a recovery, meaning “being restored to a previous condition”?

Yes – it is back to how it used to be, a frenzy around the best buys.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The local market has enjoyed relatively-healthy demand over the last three years, so the action has been on-going.  But in January it stepped up a notch or two, with buyers flooding the streets, looking to take advantage of the sub-4% rates.

Once you get into the fight and see bidding wars on every good buy, it draws you in.  The excitement helps buyers forget about those concerns off in the distance.

It may appear to be fools rushing in, but they are people who are comfortable financially, and who are tired of waiting, and want to get on with their life – which for many has been on hold for 5-10 years.

The buyers must be financially sound.  The reasons not-to-buy are so obvious, that they must be aware, yet they are proceeding anyway.

For the masses to believe in a market recovery, two things need to happen.

1. The shadow-inventory question needs to be resolved.  The day that someone steps up to the microphone and convinces people that REOs sell for retail just like every other house, and that pushing more foreclosures through the pipeline is a good thing, then we’ll know we are getting closer to a real recovery.

It may not be that far off – see this article, although this guy didn’t quite get it :

http://www.housingwire.com/news/nonjudicial-vs-judicial-states-which-will-recover-first

“We think that differences in foreclosure procedures will continue to affect state-level house price trends, with nonjudicial states outperforming,” said Diggle. “After all, as foreclosure pipelines are brought down to healthier levels in nonjudicial, high burn-through states, supply conditions can more rapidly tighten to the point that they support price growth.”

Once we get that stigma turned around, then hopefully the banks and servicers will start pressuring defaulters to pay or quit.

2. Mortgage rates need to creep up to take some of the frenzy out of the equation.

If the good-paying Americans stopped seeing deadbeats being rewarded, they would be much more likely to participate in a recovery.  But that would be taking us back to a day long ago, and I’m not sure if that is possible any more.

 

13 Comments

  1. The frenzy is unreal out there. All of a sudden everyone is flush with $$? The sellers must be chuckling by now.

  2. Can’t say it is either fools rushing in or a real recovery. Both seem to be strong terms.

    Some people need a house so they are not fools for buying a house.

    The “recovery” is a real uptick in the market, but not an indicator that prices will never come down again. 2009-2010 seemed to be a recovery, but then guess what ? 2011 hit. So, maybe 2012 is a recovery from 2011, but not a recovery from 2005.

  3. Agreed on the strong terms, and yes the recovery I speak of is in the frenzy-like conditions only.

    No appreciating price trend yet, and any big pops are sporatic at best, with many more stale listings not selling – which makes you wonder where they will end up.

    Can we call it the Big Smooth Uneven?

  4. Start evicting deadbeat homeowners that aren’t paying their mortgages.

    If prices continue to go up I’ll call it a recovery.

  5. The “recovery” is, as someone put it, a recovery from the recession, not back to 2005. That said, there are REAL buyers out there – people with jobs, money and a desire to own a home, or a move-up home. This time around we will not see the 100% finance deals on 5 condos for spec.

    The people I know who have bought in the past 6 months are all solid. Banks will start kicking deadbeats out when they realize they can sell the property as a decent price.

  6. Government receipts lag behind the “real” economy by a year to two before things “hit”. You don’t pay taxes until April after all. I would not use government tax receipts to predict anything except the past year’s performance

  7. the recovery I speak of is in the frenzy-like conditions only.

    Thanks for the qualifier, because otherwise… not yet.

  8. I think the recovery begins not when real estate prices start going up, but when they stop going down.

    If I recall correctly, real estate prices did not really start going up in 1997-98, they just stopped going down.

  9. Maybe we should work on our definition of recovery, so we’ll know it when we see it.

    If getting back to peak prices is part of the equation, then the “recovery” should be considered a good distance away from here.

    If getting to a normal or healthy marketplace, where there are roughly 2 actives to every 1 pending, we have overshot.

    Today’s SDCo count is 6,843 actives to 10,339 pendings and contingents, or 0.63 to 1.

  10. Good point Shadash.

    If banks evicted deadbeats en masse it would free up a large amount of inventory, which would cause prices to drop. Banksters and the government does not want that.

    It’s what I call passive-aggressive price manipulation.

    ————————————————
    4.Start evicting deadbeat homeowners that aren’t paying their mortgages.

    If prices continue to go up I’ll call it a recovery. – shadash

  11. I think we’re overestimating how much shadow inventory there actually is.

    According S&P latest measure of shadow inventory they include all delinquent mortgages (many of these are already listed as short sales). Plus 70% of loans that were delinquent but have already been brought current.

    once the shadow inventory myth pops people will start to realize that the market is recovering.

  12. I have said on calculated risk that I see signs the market in Sonoma County is stabilizing and that I expect prices to stabilize by late this fall or spring next year (2013). I do not expect to see 2006 prices again (In real terms) again during my lifetime. To me, recovery means prices are affordable and move up and down within a reasonable range. It causes a good deal of confusion with people I talk to unless I define what I mean by recovery. My timing might be off by 6 months but absent a black swan I’ll stick to my bet.

  13. There’s been plenty of positive news over the past 6 months to get people out looking and buying homes. The only question is if it lasts long enough to make it a sustainable recovery. It’s still a fragile recovery. The housing market probably can’t absorb an interest rate shock, or some other external event right now, but it might in the future if things keep going as they have been. You look at the monthly payment at 3.79 interest and it’s pretty compelling.

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