State of the Real Estate Market: Are We Recovering Addicts? Do We Still Need Betty Ford?
I have just returned from the “Mile-High City” where they have altitude, medicinal marijuana and a pretty decent real estate market. I was at the annual National Association of Real Estate Editors conference where, for four days, we nutcakes who obsess about real estate lived and breathed it 24/7, consuming information. And alcohol. The main take-away: enjoy that drink. Significant declines in the number of homes for sale in many U.S. markets, and fewer foreclosures (or foreclosures on hold) are boosting the country’s battered housing market. I spoke at length to two of my favorite economists, Stan Humphries of Zillow, and Mark Fleming from CoreLogic, who gave me this zippy summary up in the hospitality suite of the Brown Palace Hotel:
“We are all mules in the barn. But the U.S. is the best-looking mule in the barn.”
In other words, the whole world is a mess. Forget Greece, said one expert, we need to watch Spain and Italy, who have much larger economies. Ripples overseas could smack out this seemingly recovering market. But don’t despair too much because the Europeans and South Americans and Chinese are coming over here and buying our real estate. If you live in Florida or Vegas, in fact, and you rent don’t be surprised to find out you have a foreign landlord.
This will come as no shocker: Lawrence Yun, chief economist of the National Association of Realtors, told us inventories are falling — now down to 2005 levels nationwide, and home listings in certain neighborhoods across the country are starting to be in short supply, as we well know. There are about half as many homes on the market today as there were in 2007, or 1.8 million homes currently listed for sale on Realtor.com. In 2007, there were a whopping 3.1 million. Our North Texas inventory is down about 40% and oh how we feel it.
Then we’ve got fewer foreclosures – Yun said the number of potentially distressed inventory that will come on the market has been thinned out. Hope he’s right: Yun is so positive that light beams radiate from his face. Others say we may get a reality check in fall, when more distressed properties appear, or if Europe becomes FUBARed. Currently, previously foreclosed homes and short sales accounted for about a third of U.S. home purchases in 2011. Yun predicts they will be a 25 percent share this year, but only 15 percent in 2013.
Nationally, about one-third of homes are underwater. Not so in North Texas. Zillow says that about 21% of the home re-sales here are from buying foreclosures. Snap them up: the National Association of Realtors is forecasting a 3 to 5 percent home price increase nationally for 2012. But it could be higher, the universally sunshine-y Yun said. He predicts a 10 percent price appreciation. The median price of North Texas homes is already up by almost that amount — 9 percent higher in May than a year earlier, according to the latest statistics.
With sales and homebuilding picking up, David Crowe, top economist for the National Association of Home Builders, predicts that Texas housing markets will be more than 70 percent recovered from the crash by the end of next year.
There is so little inventory: Nationally, builders are constructing only about a third as many houses as they did before the recession thanks to tighter credit. Single-family home starts are likely to rev up to about a “modest” 19 percent across the country this year.
Here in D-FW, only about 3,000 finished new homes are sitting empty.
Recovery mode, yes, but do not think we are going to shoot this recovery straight up. Stan says the recovery is likely to be in stair-steps rather than a straight line up, “price spikes, followed by plateaus.”
We may even backslide, and And conditions will depend on the area. I sure hope someone over at Case-Shiller is reading this, because these experts made it very clear that more than ever, real estate is a local story you absolutely cannot generalize even within the same dang zipcode.
Humphries said: “Housing markets have become really hyperlocal.”
The biggest dilemma will come from the folks who are underwater, or who owe more than their properties are worth. They have no financial incentive to cure a lousy investment.
“We’ve always expected negative equity to cast a long shadow,” he said.
Ah, but you Texans were smart, Mark Fleming told me: your state saved your butt, actually learned some lessons from the 80′s. He was talking about how we smacked limits on those home equity loans. In fact, I told him, I remember when you couldn’t even get a home equity loan in Texas. He smiled. Yes, he said, turns out maybe 100% home equity loans were not such a good idea. Just ask the folks in Phoenix.
I told him that Danny Faulkner just died, he of the I-30 condo flipping fame game. Maybe we should have told him thank-you.
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