Everyone’s so anxious to call the “bottom” of the real estate housing crisis.
Why? There’s no accolade for being right. It’s not as if we’re going to see a 65 percent surge in housing prices over the next six months (and watch out for that kind of momentum in the stock market - it just feels wrong when the real unemployment rate is approaching 16 percent nationally).
All there is at the bottom of the real estate housing market is pain for millions of homeowners who have lost their homes to foreclosure, even as they’ve lost their jobs and whatever few thousand bucks they had left in their 401(k)s. And for those who are still in their homes, their net worth has fallen as their home prices have dropped 30 to 40 percent.
Things have been supposedly looking up since April, when Congress authorized an $8,000 first-time home buyer tax credit. I’ve covered the tax credit extensively in this blog, as well as Sen. Johnny Isakson’s (and friends’) push to extend it and expand it.
But the truth is that the U.S. housing market is still on life support - with the federal government supplying the Dopamine. Whether you’re looking at the $8,000 first-time home buyer tax credit, or the fact that the federal government is backing 85 percent (or more) of first mortgages through Fannie Mae, Freddie Mac, FHA, VA, or USDA, or that Uncle Sam is spending more than a $1 trillion to buy U.S. housing-backed securities to keep mortgage rates artificially low, or that the number of low-down payment FHA loans going bad is surging.
Meanwhile, new data is emerging that suggests when the federal government ultimately weans the U.S. housing market off of life support, home prices will continue to decline.
Charles Hugh Smith reports that “Fiserv, a financial information and analysis firm, is forecasting that national median home prices will fall 11.3 percent by next summer.” The recent surge in home sales and new homes under construction have launched a new housing bubble (smaller in scope), as investors are tripping all over themselves to scoop up dozens of properties (each).
(Over the past few years, investors have accounted for about 40 percent of all home purchases. That is another pretty good indicator that the U.S. housing market is on life support. That number is unsustainable and historically has been about 6 to 8 percent.)
Smith points out, correctly, that the “foreclosure pipeline is bulging,” and there are untold numbers of foreclosed homes that the banks have taken back but have not yet released for sale. Once those foreclosures hit the market, prices will again drop.
Mark Zandi, chief economist of Moody’s Economy.com agrees, telling CNN that more “price declines are coming because the foreclosure crisis isn’t over.”
If you’re going to be a real estate investor, it comes down to price and income. Can the income the property will generate support the price you’re going to pay? If not, how do you plan to keep from going broke?
We’re going to discuss this concept of income and profitability at my How To Profit From Foreclosures event this Saturday, in Atlanta. Perhaps some of those same investors who are scooping up properties as if they were Halloween candy will show up and tell us how they’re doing.
