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Obama Administration Gets Fair Marks on Efforts at Housing Market Recovery - 2009-05-10 |
The 100 day mark of the Obama administration has come and gone. As is appropriate in a free republic, almost all media outlets found a way to grade the actions of the president and his cabinet toward economic recovery. Some gradings were clouded with political agendas, and others seemed unclear on the goal, but most were generally kind to those currently in power in Washington.
All who watch the housing industry have been particularly concerned about the actions of this administration to improve the real estate markets. And I wanted to share with you my assessment of where we stand now and how we have gotten where we are.
As far as the residential market is concerned, the media likes to talk about new home sales. It generates most of the jobs in the industry, and keeps lots of people employed, from brick-layers to carpet manufacturers, from electricians to salesmen and bankers. In addition, new home sales boost our economy through sales of everything from refrigerators to big screen TVs, and that is an important part of any recovery.
But by far the larger part of the real estate market is existing home sales, making up traditionally over 80 percent of all home sales. It may not create as many jobs, but it affects the average homeowner much more than new home sales. So, how is this segment performing?
* Reflecting the September banking meltdown, the volume of existing home sales dropped about 11 percent in October and November combined during fourth quarter 2008. That is a huge drop, but it is not a catastrophe. Believe it or not, some folks are still able to put their home on the market and get it sold, although it may take longer than has been usual in years past.
The important point is that since the end of 2008, sales of existing homes have held steady at about 4.6 million units annually, down from about 5.1 before last fall. The average number of sales so far this year is similar to what we saw in the last quarter of 2008, even though about half the current resale activity is foreclosure and distressed sales.
This is good news, in my opinion.
It means that the combination of low prices, historically low interest rates, and the administration's stimulus programs are seemingly enough to stabilize the resale residential market at its current level. And that stabilization is important. Because before we can experience any recovery, we must achieve stabilization.
We are beginning to see a number of hopeful signs in our economy. Some of them are fleeting, such as a huge jump in consumer confidence this Spring. Others are more concrete, such as the president's housing initiative which provides for loan refinancings and loan modifications, and has a primary goal of keeping owners in their homes if at all possible.
As with any economic forecast, it's impossible to tell where you are until you have passed it and look back. But I am becoming increasingly convinced that the housing sector has gone about as low as it is going to go. I believe we are now bumping along the bottom, and only time will tell when we will begin to see prices firm and sales recover.
A few words about home values are worthwhile as well.
* There is increasing evidence that the numbers being thrown about on a monthly basis by various "price indexes" are inaccurate at best, and misleading at worst. Respected economists are questioning the methodology of price indexes that are widely watched, and charging that they fail to accurately measure price changes. The underlying problem is that no two parcels of real estate can ever be identical, so what you sell your house for today may not be what mine is worth tomorrow, even if they are next door to one another.
The consistently bearish S&P/Case-Schiller Index has led the media assault on reporting supposedly shocking price declines. Yet its conclusions have been criticized recently for being based on information from only 20 cities, most of which are concentrated on the east and west coasts. Seven of those cities are in the so-called sand states of FL, CA, AZ and NV, states which have suffered exaggerated price declines due to prior speculation and price frenzy.
Moreover, if half of all resale activity is accounted for by sales of bank-owned homes and foreclosures, it only makes sense that the record of transaction prices would reflect a dramatic decline. The sale of often damaged and uninhabitable houses from banks to investors at distressed prices are not, I repeat, not reflective of the actions of today's typical buyer and should not be considered typical of the overall market.
Not until the current glut of homes going into foreclosure begins to lessen will we be able to use average resale prices as a reliable indicator of value in the housing market. Until that time, the concept of value remains what it has always been: what the seller is willing to accept, and what the buyer is willing to offer.
Questions or comments?
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One of the significant annual expenses faced by any Georgia property owner is ad valorem property tax. Depending on where you live, it can be as high as three percent of the property's fair market value, and it must be paid year after year after year.
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