Starting right now, there should be an uptick in hiring due to the stimulus spending and getting ready for the Christmas season. We are also seeing some increase related to the increase in auto sales.
Will this uptick be enough to reduce the unemployment rate? We saw a very minor tick down in the July unemployment rate that may disappear upon revision. There are still jobs being lost, as there always are, and new people enter the workforce. To offset this we see a certain number of people leave the workforce due to retirement or death and we also have a certain number who partially retire, going to part time work.
We have a very large number of baby boomers who are entering the retirement age demographic. Due to recent economic events, some of them have been forced into early retirement, but more have revised plans due to loss of retirement assets and/or home value.
A lot of the increase in savings we have seen is being done by these very people as they try to recoup or replace these lost retirement savings. Will this new thrift continue? Generally speaking, the baby boomer generation has not shown tremendous ability to postpone gratification. In addition, some of this reaction was inspired by a degree of panic that has started to dissipate.
The increase in stock prices is part of the recovery equation that helps these baby boomers recoup some of their wealth. What is needed next is for their to be an upturn in real estate prices. Now most experts are predicting that prices will continue to fall for another year. Most owners, feel that prices have hit bottom and will start to increase. Why would we have this disconnect? Well their are two clear factors. In some parts of the country real estate is truly depressed. Many people have been foreclosed on and almost all sales are those of foreclosed homes. However in other parts of the country things have just not been that bad. This is related to the number of houses in play so to speak. Where there has been significant new construction and therefore new buyers at the top of the bubble, California, Nevada, Florida, Arizona, the downturn has been catastrophic.
However in more stable parts of the country, while much of the sales activity has been in foreclosed homes, most people simply postponed any plan to sell their home, waiting for prices to increase. So, for the relatively small number of homes in those areas that were in foreclosure, prices were very reduced, the number of homes actually impacted and overall sales activity was very slow. Further the reduction in price from the bubble period is not very dramatic.
One area that saw tremendous price escalation was Washington D.C. From May 2006 to now the median asking price of a home there has dropped from 489,000 to 307,000 a 37% drop. However the rate of decline has decreased tremendously recently although it is still happening. Now inventory of home for sale in the D.C area is around 30,000 (it was up to almost 40,000 at the peak). If you look at Dallas TX during the same period you see that median asking prices actually increased from 165,000 to 201,000 during the same period with inventories dropping from a little over 35,000 to a little over 30,000.
Dallas is certainly an exception, but as I look at area after area, it is clear that while most have seen some decline in prices due to worsening economic conditions, most have not seen the dramatic impacts of the states hardest hit. So while the amount of activity has been greatly skewed by the number of foreclosures in the hardest hit bubble states, most Americans don't actually live in those states.
So where national statistics are grim, many local statistics are nowhere near as bad. In fact, I see many real tors in this area trying to get me to sell be saying they have plenty of eligible buyers. I don't intend to sell, but advertisements like that, even if exaggerated would lead me to believe that if I did, I could get a decent price.
Looking at real estate from a National perspective ignores the three fundamentals of real estate, location, location, location.
Showing posts with label prices. Show all posts
Showing posts with label prices. Show all posts
Friday, August 21, 2009
Wednesday, July 29, 2009
Housing prices
Yesterday we got the Case-Schilling housing report and it showed that in most parts of the country housing prices either held their own or went up a bit from May to June.
Now the increases weren't dramatic and prices are still down from a year ago (can't imagine that should surprise anyone) but if prices have stopped going down month to month in most places and stabilized or gone up it would be a very positive sign.
Now most analysts do see it as a positive sign but of course they are all hedging their bets and some are completely discounting it.
The main arguments you hear or read about why it doesn't mean much include:
- Prices are still down since last year
- The houses being bought are foreclosure houses
- The buying is artificial because of the $8,000 Government stimulus for first time buyers
- Many of the houses are being bought by speculators trying to turn a profit
- This is only a pause and the descent will begin again as unemployment continues to rise
- There are many houses where the owners and/or the banks have not put them up for sale because of low prices.
Now, some of these statements are clearly factual and a couple are suppositions. The one about additional foreclosures and price declines coming as unemployment rises is the most speculative and would require the economy to have a second dip. Of course this is possible but based on most current indicators just doesn't seem very likely in the near term.
The fact that prices are down from last year is true but not sure what it matters. If prices rise at a very slow pace from here, by next June, we will see prices being higher year over year. It is both unlikely and probably undesirable for prices to escalate at too high a pace. We just got out of a housing bubble and once prices bottom, as they very well may have, we simply want to see them increase in line with the economy as a whole.
Yes the Government housing stimulus is likely have an impact and the question has to be will buying continue after it ends. That is a fact that won't be answered until it ends but the hope is that by then, the economy will be improving enough on its own. It is also very possible that the incentive may be extended or even revised to include all buyers. Time will tell.
If speculators are buying the houses with the hope of turning a quick profit or turning them into rentals with the hope of long term capital appreciation, I'm not sure why this is a bad thing. We certainly wouldn't want to see a speculative frenzy leading to another bubble but investing i housing, flipping houses or renting out units seems like a sign of recovery rather than anything else.
Yes, a lot of the houses being sold are foreclosures. Makes sense since they are the lowest houses out there and why wouldn't they sell first? Once again, we clearly want to get these houses back into the marketplace. What would be the alternative to selling them?
The fact that people are not putting houses up for sale because they are hoping for prices to rise is another fact that may very well be true and may act as a damper on prices since they will put houses up for sale as prices rise increasing supply. However, this will only happen if prices rise and will help avoid potential bubble conditions. Not a terrible thing.
Of course for those folks who are convinced, or possibly just desirous of a true economic catastrophe, nothing will convince them things are getting better. For most of us the fact that housing prices were stable month over month is good news, although we need a few more months of increases to see a true trend.
Now the increases weren't dramatic and prices are still down from a year ago (can't imagine that should surprise anyone) but if prices have stopped going down month to month in most places and stabilized or gone up it would be a very positive sign.
Now most analysts do see it as a positive sign but of course they are all hedging their bets and some are completely discounting it.
The main arguments you hear or read about why it doesn't mean much include:
- Prices are still down since last year
- The houses being bought are foreclosure houses
- The buying is artificial because of the $8,000 Government stimulus for first time buyers
- Many of the houses are being bought by speculators trying to turn a profit
- This is only a pause and the descent will begin again as unemployment continues to rise
- There are many houses where the owners and/or the banks have not put them up for sale because of low prices.
Now, some of these statements are clearly factual and a couple are suppositions. The one about additional foreclosures and price declines coming as unemployment rises is the most speculative and would require the economy to have a second dip. Of course this is possible but based on most current indicators just doesn't seem very likely in the near term.
The fact that prices are down from last year is true but not sure what it matters. If prices rise at a very slow pace from here, by next June, we will see prices being higher year over year. It is both unlikely and probably undesirable for prices to escalate at too high a pace. We just got out of a housing bubble and once prices bottom, as they very well may have, we simply want to see them increase in line with the economy as a whole.
Yes the Government housing stimulus is likely have an impact and the question has to be will buying continue after it ends. That is a fact that won't be answered until it ends but the hope is that by then, the economy will be improving enough on its own. It is also very possible that the incentive may be extended or even revised to include all buyers. Time will tell.
If speculators are buying the houses with the hope of turning a quick profit or turning them into rentals with the hope of long term capital appreciation, I'm not sure why this is a bad thing. We certainly wouldn't want to see a speculative frenzy leading to another bubble but investing i housing, flipping houses or renting out units seems like a sign of recovery rather than anything else.
Yes, a lot of the houses being sold are foreclosures. Makes sense since they are the lowest houses out there and why wouldn't they sell first? Once again, we clearly want to get these houses back into the marketplace. What would be the alternative to selling them?
The fact that people are not putting houses up for sale because they are hoping for prices to rise is another fact that may very well be true and may act as a damper on prices since they will put houses up for sale as prices rise increasing supply. However, this will only happen if prices rise and will help avoid potential bubble conditions. Not a terrible thing.
Of course for those folks who are convinced, or possibly just desirous of a true economic catastrophe, nothing will convince them things are getting better. For most of us the fact that housing prices were stable month over month is good news, although we need a few more months of increases to see a true trend.
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