Is the Real Estate Market turning around?
Many signs point to stabilization of Real Estate prices, signaling a healing in the housing crisis and an end to the steepest price decline in years. Below I have listed some of the positive and negative factors influencing the market.
POSITIVE FACTORS:
The August 25th Case-Shiller/S&P price index showed its second consecutive monthly gain in June, with 18 of 20 markets showing price increases. The Case-Shiller index is the industry standard for tracking national housing price trends and uses a three-month average, thus the latest figures represent April, May and June.
Existing home sales rose 7.2 percent in July, representing the largest increase in more than ten years (National Association of Realtors). New home sales in July were up 9.6 percent compared to June (U.S. Commerce Department)
The rate of single-family housing starts (U.S. Census Bureau and the U.S. Department of Housing and Urban Development) in July was up 1.7% from June.
Foreclosures related to sub-prime loans, one of the biggest contributors to the housing crisis, have declined (Mortgage Bankers Association).
The Mortgage Bankers Association index of new mortgage applications increased by 5.6 percent (week ending August 14th).
NEGATIVE FACTORS:
Approximately 30% of July exsisting home sales are related to foreclosures and short-sale bank losses (National Association of Realtors).
The Mortgage Bankers Association reported that the number of homeowners behind in their mortgage payments hit a new high during the second quarter of 2009, with one in three new foreclosures between April and June from a prime, fixed-rate loan.
Continued unemployment (U.S. Bureau of Labor Statistics) will continue to drive the pace of foreclosures.
The commercial real estate market is being hit hard by the recession (Federal Deposit Isurance Commission, National Association of Relators).
Because of turmoil in the financial and housing markets, banks are still reluctant to lend (Federal Deposit Insurance Corporation) during this period of record loan delinquencies and econonmic uncertainty.
CONCLUSIONS:
It looks like the recovery is occurring from the “bottom up”, with exceptional deals in lower-priced properties being snapped up first. The data below shows the relationship between year-to-year sales and price category.
U.S. Existing Home Sales 2008/2009
$0 – $100,000 Up 38.8%
100,000 – $250,000 Up 8.7%
$250,000 – $500,000 Down 6.2%
$500,000 – $750,000 Down 8.9%
$750,000 – $1,000,000 Down 10.6%
$1,000,000 – $2,000,000 Down 23.3%
$2,000,000 + Down 32.4%
Source: National Association of Realtors (July 2009)
When the national employment picture improves, broader economic recovery will take hold, demand will increase and the market will turn around. Because of excess inventory, recovery for much of the condo market will lag behind single-family homes.
Even though it is likely we are nearing the technical end the “Great Recessionm”, which began in December 2007 (National Bureau of Economic Research), it is likely that recovery will be a gradual process that will occur over a period of years.
TIME TO BUY:
As an investor, we are currently in a window of opportunity for properties under $300,000, especially in desirable neighborhoods such as Coral Gables, South Miami and West Miami (west of Red Road across from Coral Gables). The best deals are available to buyers with readily available cash. In economic hard times “cash is king”.
For a primary residence to live in, the best deals are mostly in Coral Gables, where foreclosure rates have been higher than in Coconut Grove or Pinecrest.