There are five major factors that are significantly affecting the real estate market.
The first is UNEMPLOYMENT. There are 12.5 million people on unemployment according the Bureau of Labor Statistics. There are 8 – 10 million who have fallen off the charts or are underemployed. Seventy percent of the economy is consumer driven and 20% of the GDP is related to real estate. People who want to buy homes can’t unless they are employed with a savings account.
The second is CONSUMER CONFIDENCE. It is currently bouncing somewhere near the bottom. On a national level, home ownership never lost value from the time of the Great Depression until the time of the Great Recession. We are struggling to prove that the owning a home is still the American Dream.
The third is INVENTORY OF HOMES. There are 3.5 million homes listed for sale. In the 10 years trailing the average was 2.5 million homes; there are 30% more homes for sale today. There has to be an absorption of homes currently for sale before new construction can begin.
The fourth is SHADOW INVENTORY. In 2008 there were 1.8 million foreclosures. In 2009 there were 2.1 million foreclosures and in 2010 it is predicted that we will see somewhere close to 2.9 million homes in foreclosure. 25% of all mortgages are underwater and out of 55 million mortgages, 8 million are 90 days or more in arrears.
The fifth is GOVERNMENT STIMULUS AND SUPPORT. We saw a “false” high which was provided by the tax credit and low interest rates. Without continued support many people believe that we we see a sharp decline in home sales beginning in May, 2010.
I believe that we are at the beginning of the end of the real estate slump and the climb is going to be slow. The long term road to recovery is going to be considered the “new normal” according to real estate experts.