Wednesday, May 27, 2009

Distressed Sales, Home Ownership, Inflation Trap & The Four Horsemen of Real Estate, St George Conclusions

Real estate in St George Utah seems to be picking up. But while it is perceived by many a realtor, we question why some would want to stay sitting on the fence. The reluctance may be understandable when you look at the national scene. The economic roller coaster continues. Several factors are involved in this mixture, which we evaluate below. Then we summarize with commentary involving the "Four Horsemen of Real Estate", termed by Dennis Torres. Only the 'fourth horseman' is made of iron and like a freight train, although in the distance, is coming right at us- it is called inflation that comes from the weakening dollar. High interest rates accompany inflation.

Distressed Sales

Distressed sales makeup 45 to 50 percent of home sales. The passage of economic stimulus legislation offers hope for market stabilization.

Home Ownership

Home ownership now a days is like raising children. Minor or major tantrums are overlooked by the overall long-term gains in good character development. OK, not a good analogy sometimes, but it works good in theory and in practice overall. To counter my dose of optimism with realism, the National Association or Realtors (NAR) recently analyzed Federal Reserve data and resoundingly show how home-equity snapshots paint a bright picture. My reporting comes from an article titled, "Homeownership Still Pays", by Robert Freedman out of Realtor magazine.

First, home ownership wealth exceeds that of renters by a factor of 50-to-1, the main difference being home equity, of course. What it doesn't say is that earnings also come from working, not just leveraging appreciation in ones home. However, the rest of the article does speak to home equity gains, which is where our real focus is.

Second, even with household's who have owned only since 2003, home equity gains are the rule rather than the exception.

One may ask, how can it be the rule when we've had huge widespread depreciation. Well, if you bought in the middle yes, but ride it out and even in hard hit areas, overall the 10, 15, and 20 years outlook has uniformly enjoyed strong equity gains despite the recent downturn. So much so, are even the 5 year gains across America, that home ownership as a rule, is still a viable and better served ambition over renting. Freedman summarizes, "The data clearly shows that home ownership remains the biggest store of wealth for the typical household, even when markets are buffeted by some admittedly very rocky years."

One argument central to reporting on the economy, that I will take and have gleaned is thus: The housing market, most industries, and the economy are cyclical.

Another consideration bolstering ownership might be the fact that the commodities market involving construction materials to include finishing products has not depreciated, such that value in the materials inside homes sustain themselves.

Now or perhaps in the near future, if the dollar weakens more, it may take more of it (the dollars) to equal that value. Getting that attached number right given inflation may become more a matter of pricing and valueing what is there, rather than a matter of home shoppers speculating on the market, given higher interest rates.

Here in St George Utah, although many distressed sales congregate down in the lower price ranges, I've seen a lot of first time home buyer activity with product being sold, lead to inventory or options shrinking. I'd like to predict that many of these lower price range homes, even older homes, will come to hold there value well, such that even -fixer upper- will begin to become a friendly term again.

If you need a good St George home loan suggestion on qualifying and at what price range I do suggest consulting first before waisting time looking at too many homes. Even some multiple-home investors have become surprised by new governing guidelines, in not qualifying, although it has been made much easier for first time home buyers.

Inflation Trap & The Four Horsemen of Real Estate

Inflation
Lawrence Yun, Chief Economist for the NAR, in an article titled "Efforts to Spur Growth Can Backfire", cites how people are buying less, such that government action to ease the "credit crisis" or loosen stagnation and restore consumer confidence is warranted. However, the Feds infusion of money..., although Yun does not explain how, except to ...explain it like a gas pump- that "if the pump stays open for too long, the result will be upward pressure on prices".

Feeding into our cyclical idea, he does cite history saying that in the 1970's and early 1980's property values rose in tandem with consumer price inflation. Also, while property owners would be clear winners, ultimately buyers will lose because high inflation automatically brings high interest rates. Wait, because nobody wins if consumers can't buy that home of yours because the cost of money is at too high a price or high interest payments. Yun believes that inflation is not inevitable. On the other hand a lot of the government spending is long-term debt, he says. Hello, has anybody checked the national debt lately?

National Debt
The national debt is a conundrum that Frontline with PBS tried to tackle with interviewing several experts on the subject in March of 2009. The special was titled "Ten Trillion and Counting". One noteworthy concern, Paul O'Neill says, we have a bigger problem of $53 Trillion in unfunded liabilities like Medicare and Social Security that is floated debt that the government could possibly default or reneg and send us into what he calls, 'making this last financial crisis look like child's play'. The below is a more moderate response from the same program.

Maya MacGuineas, President of the Committee for a Responsible Federal Budget says:

We know that, right now, if you look forward, the U.S. is on an unsustainable path. What you don't know is when our creditors ... will say, "No more." And that could come at any moment, just like the bursting of the housing bubble almost seemed to come out of thin air. Nothing really seemed to trigger it.
... Is there a chance that our standard of living would decline if this problem were to continue to grow?
The Congressional Budget Office recently came out with a report that says if we stay on the path that we're on right now, our economy will start to shrink. That was almost inconceivable a few years ago. ... The main problem is that we've promised away so much of our economy. We've made all these promises through future programs that we will put our resources here or here or here. That means we've taken away the flexibility from our budget, and we've precommitted resources in ways that will not help grow the economy. And younger generations of workers are really going to pay the price on that.
Weakening of the Dollar
The major concern of many national economists is that the government can't continue to print trillions of dollars to pay for wars and various industry bailouts without devaluing the worth of the dollar.

The Four Horsemen of Real Estate
In the June 2009 addition of Realtor magazine I find one article, by Dennis Terres (Pepperdine University's real estate strategies director of real estate operations) very intriguing. He predicted the downturn in the market and its severity, almost to a "T", when we know many did and would have scoffed. Central to his argument was that the housing market is cyclical. Dennis almost hauntingly pursues his 'cyclical argument' conclusion to another end, saying that he also thinks we are overdue for rampant inflation. Dennis describes this lead up in terms of four horsemen after the four horsemen of the apocalypse.

  1. The collapse of the sub-prime loan market followed by losses in the prime mortgage market. 2008 saw an 81% increase of foreclosures over 2007. Economic stimulus legislation offers hope for stabilization.
  2. High unemployment, to the tune of 8.9% in April 2009- the highest level in 25 years. No jobs equals, consumers less likely to pay bills, including mortgages.
  3. Consumer debt. U.S. consumers carry $900 billion in credit card debt alone, according to the Federal Reserve.
  4. Rampant inflation. This is still on the horizon, but many believe it is inevitable. Accompanying inflation are high interest rates.

Conclusions

I guess this would all be a hodge podge without some kind of conclusion and this is kind of my predictions. My predictions will follow Dennis Torres', that we will have a period of stagnation as to real estate prices. I believe it to be a bit shorter than his predicted 3 to 5 years. After which we will see prices climb again and a brief scenario of prosperity. Then I think we will see a weakening of the dollar to become more pronounced leading to rampant inflation. To say it more moderately and to repeat using Maya MacGuineas, President of the Committee for a Responsible Federal Budget, "...we've precommitted resources in ways that will not help grow the economy. And younger generations of workers are really going to pay the price on that. "

The implications on the housing market will be, I believe, to ascertain where value really lies, that home ownership while cyclical, overall contains its own value that proves useful to building some equity or wealth, although accompanying higher prices on a weakened dollar, none the less equals real value. As such, before interest rates rise, if it were me, I'd get in now, while interest rates are low and also in utilizing the next couple years to find a 'permanent' home because it might become awfully expensive to move later, altering your interest rate and payment schedule, being drastically higher.

For retirees, I'd get in now, before house prices go up, where you think you'll secure that final resting place AND I think St George retirement communities are a good place for that. If this article has been of some value to your thoughts toward this, I'd hope to have won your business to be your area St George Realtor of choice.

The thing I'd have people hear about the St George Real Estate Market is this, and I admit it is subjective experience at this point, even as one realtor to anothers predictions can vary in the same city, as well as individual experience, but I do think that the choices on the market are becoming slimmer for either finding that really good deal or even in finding that home or town home that is agreeably fitting ones preferences.

Some troubled waters include how to negotiate the all-complicated Short Sales, "mirages in the desert" (the lower prices are not real), that are inundating the market. Response times to hear back on your offer typically range from 2 to 4 months. Knowing which banks are good and which are bad for getting a Short Sale done, can prove invaluable. While very few fit that category of good now, I think that it will slowly expand as they 'have to' (boy it has always been relative to them and their schedule) get better at it IF they want to compete, mainly because realtors have listed legion, in the ACTIVE for sale market. Foreclosures or REO Bank Homes are much easier to deal with in getting a response to ones offer, usually within 48 hours. We provide a comprehensive list and email updates on area St George Foreclosures. Don't miss out and sign up here to get your 'individually tailored' list now. Or you can shop for all St George Homes for Sale.

Tuesday, May 05, 2009

National and Local St George Utah Real Estate Update

National Real Estate Update

Will the federal governments mortgage aid program thaw the market? Several reporting facts will help paint a picture and keep you informed regarding the market at large and in how St George Homes for Sale may be impacted.
  • According to Moody's Economy, third quarter of 2009 11.8 million U.S. borrowers owed more on their homes than their properties were worth and in the end of 2009 it rose to 13.6 million.
  • Government plan persuades mortgage servicing companies to ease up on borrowers who are in financial straits so severe that they risk losing their homes.
  • Government backed mortgage giants, Fannie Mae and Freddie Mac, offer to refinance loans for millions of borrowers who may owe more than their homes are worth, even if they are wealthy enough to afford current payments.
  • Zillow.com reports 142% increase in number of consumers looking for a loan, 60 percent involving refinancing.
  • National Association of Hombuilders reports affordability skyrocketing as home prices decline. Wells Fargo Housing Opportunity Index reveals in the third quarter of 2008, that 56.1% of homes sold were affordable to families earning the national median income of $61,500, while in the third quarter of 2008 that goes up to 62.4% being affordable sold homes.
  • California sales had a dramatic upturn of home sales this past winter, although it was accompanied by a corresponding dramatic drop in home prices. A home that costs $254,350 now, used to cost $427,200 in January of 2008. California is on pace to see 624,940 homes sold this year compared to the pace of 311,160 last year this time. "The strength in California home sales in recent months signifies that the market is gradually working its way through the large numbers of distressed sales that have followed in the wake of the troubled mortgage problem," says California Association of Realtors President James Liptak. He adds that affordability "is now at its highest since the start of the decade."

St George Utah Real Estate Update

St George real estate has had a significant upturn in the amount of offers being brought onto foreclosed properties as well as other resales. California used to be a good reflection of how St George real estate itself would be doing as well. Well, a definite increase in buyer activity is felt by many realtor's, not just buyers realtor's, but several listing agents here at RE/MAX First Realty. Particularly first time home buyer price ranges are heating up with activity. You will find Brian Habel on the roster, able willing and qualified to help you with your real estate needs. Also, please avail yourself to getting prequalified for St George home loans, before you waste too much of your time.