Another Housing Bottom?
Posted on 7/12/2012 by Don Creech
David Wessel at the Wall Street Journal reports that housing has finally bottomed with an up tick in some prices. Further, 44 of 47 analysts agree that housing will no longer be a drag on our economy.
“Nearly 10% more existing homes were sold in May than in the same month a year earlier, many purchased by investors who plan to rent them for now and sell them later…”
This is evidence of capital seeking a return that cannot be obtained from other sources. Residential rents may well be better than the current interest rate on various cash equivalents.
The caveat arrives for the thorough reader in the closing paragraph.
“Plenty could go wrong. The biggest threat is a large shadow inventory of unsold homes, homes which owners won't put on the market because they are underwater, homes that will be foreclosed eventually and homes owned by lenders. They have been trickling onto the market, slowed in part by government efforts to delay foreclosures; a flood could reverse the recent rise in prices. Or the still-dysfunctional mortgage market could get worse.”
“Plenty” might just include the foreclosures delayed due to mortgage industry litigation over improper documents. Foreclosure starts will resume as they have in California. Banks want to deal with the back log of delinquent loans. Fitch Ratings reported that another 12% of bad loans were started down the foreclosure road in June.
The other absence of support for prices may be from Gen-Renters. The 20-somethings have yet to find employment that supports family formation, much less qualifies for a mortgage. With a need to be very mobile for employment opportunities and lacking capital for a down payment, renting close to work is an economic decision. Many Gen-Renters may not think a home in the suburbs is attractive, but most don’t have toddlers needing a back yard.
Even with cheap loans available, the Gen-Renters should not be expected to become home owners until their early ‘30s. With the current economic environment, that may be delayed until homes are priced again as in the ‘50s and ‘60s. A great out come for them. Not so much for those of us who are owners.
Housing recoveries occur where there is job creation - THE magnet that can create demand for housing. Here is an interactive chart to examine the prospects where you live.