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Another Real Estate Market Opinion

March 9th, 2010 1:32 PM by Lehel S.

The below article is a compilation from others peppered with our own opinion and we fully believe the below to be true............

I'm going to take some heat for this, but I have an opinion on the national real estate climate.

I know, I know, the concept of me owning an opinion is a surprise a kin to the sun rising each morning but there's something happening with the real estate market on a national level that I don't quite understand. There is an optimism that seems to be sprouting up around the country in regards to the housing markets, and it’s an optimism that seems to be lacking a sturdy foundation.

On a national level, I'm currently a broad market housing bear. I believe in real estate, and I love real estate, but I don't think the market is currently acting entirely rational. Markets like Southern California are on the upswing, with 2009 volume and pricing both up from 2008. National markets are seeing an increase in volume and even slight up ticks in pricing, and the real estate mood is turning more and more positive with each passing month. If the sentiment on the street, and the sales pitches breathlessly leaving Realtors mouths are mostly positive, things would appear, on the surface, to be turning around. Not so fast, as there are some major factors and influences on this market that are being ignored.

By now, everyone knows that the housing crash of 2008 was brought about by a dangerous confluence of bad loans, unsustainable prices, and a weakening job market. Equal to those well known factors is the lesser known concept that demand may have dried up simply because so many people bought homes from 2002 to 2007, and there just wasn't enough fresh money in the market to continue pushing prices and home ownership rates higher.

When the market started reversing in 2007, those caught with negative equity began giving up their homes in historical numbers. Foreclosures soared, and the properties that banks now owned as REO had their prices slashed as banks tried to unload the crushing burden of their swelling real estate portfolios. The following two years saw a reduction in prices that in some markets have fallen as much as 70% from the market highs. The root of the problem has been the foreclosure boom, and as long as the foreclosure rate holds steady or rises, there can be no housing recovery on a national level.

With things looking up at real estate offices everywhere, this new optimism must be based on some statistical proof that we're coming out of a bear housing market. There must be some signs pointing to a lessoning of foreclosures, higher sales prices of REO's, and increased volume. Buyers were active last summer nationally, and certainly those buyers were buying at the "bottom" of the national market. Right? Unfortunately, in my opinion, wrong.

Late last year, Freddie Mac released their activity report which includes YTD statistical information from the government run mortgage giant. There were a bunch of numbers in the report, but only one that really matters when looking for a sign as to the future of the national real estate market, the delinquency rate.

Delinquency rate is a term used to describe loans that are more than 90 days past due, and it is one of the key statistical signals for judging the health of the market moving forward. With a nascent recovery underway, certainly the delinquency rate is decreasing, or at the very least, holding steady, right? Again, wrong. The delinquency rate for Freddie Mac's loan portfolio increased in September to 3.33%. The August number was 3.13% and here's the real kicker- one year ago the rate was a mere 1.22%. Realtytrac statistics aside, I believe reviewing the holdings of a mortgage giant are a more accurate way to gauge future foreclosure activity.

If you're looking for a recovery on a national level, really think about this delinquency rate and what it means for the near future of the national market. The general attitude is that the worst is over, and it's time to buy. Realtors love that time to buy stuff, but that happy whiskers on kittens attitude just isn't backed with any solid statistical data yet. As long as delinquency rates stay high, a lasting recovery cannot begin.

How's that for some negative news from this cheerful real estate guy? The reality is that I do think that all markets are individual. A bottom for one may not represent a bottom for all, so it's important to pay attention to the market trends for the individual market you're affected by.

If you're looking in Southern California for a home, the delinquency rate has a large effect on you largely because our market has not yet proven to hit bottom and is still heavily affected by foreclosure issues. Obviously you need to pay attention to the market statistics, but in doing so, always keep that delinquency rate in mind. As long as the rate is increasing or remaining stable at the current elevated level, a national rebound in prices and volume cannot be sustained.

Posted in:General
Posted by Lehel S. on March 9th, 2010 1:32 PM



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