So what happened to the real estate recession?
What happened is that the real estate recession is temporarily over.
Consider the following:
In the area where my office is (eastern San Diego County), the ratio of properties under contract to listed properties is about 2-1. In other words, there are twice as many properties that are in some sense “off market” (not including the “sold” properties) as there are properties for sale.
Everyone in our office is writing many unsuccessful full price or above full price offers. In other words, the real estate agents and the buyers are chasing a decreasing number of properties, and even full-price cash offers are being passed over for better, over full price cash offers. We are now in a full-scale bidding war for the few properties that are on the market, and the listing agents love it. They don’t even have to answer their telephones. They can provide messages on their voice machines that say, “read the information on our website,” or, “We have too many offers, don’t call again,” and the buyers and their agents have to do just as they say, because their’s nothing else to buy.
Will this continue? Are we in for a “run-up” in real estate prices like we had in 2001-2006?
Probably not. There were several factors that made the preceding run up possible.
- Easy Credit, including the famous “stated income loans.” That won’t be returning, at least for a while.
- Jobs. We had almost full employment. We are now hovering at nearly 20% unemployment (closer to the real figure–10% is what the govt puts out, without accounting for people who have stopped looking for work, and without considering people who took part-time work just to survive, and are thus technically “employed.” in addition, many of the “replacement jobs” people are getting pay very little.
- Plenty of foreign investors to buy the loans made by the banks and brokers. that will not happen again soon. The foreign market for our “debt obligations” has long-term indigestion. They don’t want any more of our CDO’s, CMO’s, etc. etc., and they don’t believe any of the ratings services that pronounced them “good.”
- The buyer’s attitude: ”Buy it today, it will be gone tomorrow;” “buy it and sell it next year;” “buy the biggest house you can, it will go up and you will make even more money when you retire and sell.” Today, buyers want to buy something to live in, not to sell. This makes them much more careful about buying only what they can afford. Of course, the lenders are much more careful today as well, and they are not making loans without some real assurance the borrower can pay the money back.
So what will happen? I have some ideas, based on the facts we know:
- If you are selling, it’s not a bad idea to take advantage of the current “feeding frenzy.” Here’s why.
- In January or February, the scuttlebutt is that the lenders are going to release a massive number of foreclosures into the market. We have no way of knowing how and when they will do this, but it there is a giant backlog of property ready to come to market. This will be good for buyers, and not so good for sellers.
- The Fed is going to have to raise interest rates. The dollar is weakening so drastically that it’s got to be protected. The only way the Fed can do this is to raise rates and reduce the money supply. This will make loans more expensive, and more difficult to get.
- The lenders are getting the “short sale” process under control, and people who want to sell in pre-foreclosure are finding it easier to do so. If you are a seller with equity, this will impact prices even more–short sellers don’t need equity. They just sell for what they can get out of the property, and let the bank take the hit.
- We will probably see some DEflation. Why? because the downward pressures that will eventually solve the problems we face (increasing interest rates, reduced money supply) will also produce temporary downward pressures on housing prices.
These things combine to mean that there will very likely be much more housing on the market, at about the same price or a bit higher, with the result that you, as a seller, won’t not see the price increases that you expect. These situations will probably impact the housing market for some time–people unable to buy because they are not working, lenders dumping property on the market, and scarce, expensive money. In short, prices are not going to rise for some time. If you plan to sell in the next few years, you need to consider doing it sooner rather than later. I don’t really think we have a “doomsday scenario” going on, but I do believe that the next few years will be quite difficult. Acting now won’t necessarily exempt you from tough times, but there is absolutely no guarantee that times will get better for selling in any time under five years.
