Chicago Relocation
 

The End Is Near?

July 23, 2009

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My colleague here at Rubloff, Ross Nemzin, has shared his thoughts on a recent Rubloff Chicago News offering.  Ross, who is earning a degree in real estate while working at Rubloff, can be reached at rnemzin@rubloff.com

Last week’s Rubloff News offered an optimistic article on the state of the economy.  The Conference Board, a non-profit organization that “creates and disseminates knowledge about management and the marketplace,” has a Leading Economic Index that suggests the end of the recession is almost upon us.  Reasons for the optimism are an increase in seven of their ten indicators, including supplier deliveries, interest rate spread, and stock prices.  Other factors include increased consumer confidence, less market volatility, and the stabilization of the housing market.

But has the housing market actually hit rock bottom?  Those who say yes, we’re at the bottom, are likely to cite April’s 3.6% decrease in the supply of homes.  They would go on to mention that this reduction came in a month where housing inventories usually increase as a result of the spring home-shopping season.  They might also tell you that according to Zip Realty, the April housing inventory in 29 major metro areas was down 21% or, according to the National Association of Realtors, only 3.7 million homes were listed for sale nationwide at the end of March, a 10% decrease from last year.  With all this empirical evidence, how could anyone refuse to say the housing market has bottomed out?

The reason someone could deny rock bottom is that these numbers do not include all of the foreclosed homes that banks are trying to sell.  Estimates are that the nation’s largest banks are listing only about 60% of foreclosed homes.  Other estimates say that Freddie Mac and Fannie Mae only list roughly 35-50% of their foreclosed homes.  This is because some foreclosures are offered as rentals while others need repairs, face pending litigation, or are delayed for some other reason.  The inclusion of these homes would greatly alter the above data.  In addition, Barclays estimates that foreclosed homes have increased by 100,000 from a year ago and that the number will peak in mid to late 2010.  So while it is safe to say that the housing market is very close to bottoming out, it may not actually be there yet.

It is more likely, however, that housing in many local markets has bottomed out.  Real estate markets are “hyper-local,” meaning that a national average of all markets may not apply.  I like a quote by Andrew Waite, a former institutional investor who said that combining real estate data in two different markets is like “a weatherman who combines conditions in Nome, Alaska and Clearwater, Florida and issues an ‘average’ national forecast of 45 degrees.”  Instead, Waite says real estate must be segmented multiple times—by neighborhood, price point, cap rate, and many other factors—to get a real feel for how a particular market is doing.  According to his analysis, many US cities have already hit rock bottom.

The good news is that most US homeowners (19 out of 20) do not plan to sell their house in a given year.  So, if there’s no rush to sell your home, chances are it will recuperate much of its worth over the next couple of years.

Hopefully the rest of the economy follows suit—sooner rather than later.

http://www.tatteredcoat.com

 

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