My friend, Norman Stanowski, is an economist. We often sift through economic data and reach similar conclusions. He sent me this piece the other day.
What it portrays is a real estate market that is perfect for anyone whose future has in it a change of homes. That especially holds true for those who would like to sell their current home and buy one of substantially greater value. While to do so would be going against most people's emotions, in reality it offers far less risk and substantially better opportunities for future gains than remaining in your current house until the market recovers, then making the change.
It gives you the opportunity to take advantage of an investment strategy called arbitrage.
Meanwhile, here's what will work to your advantage even though it will be bleak for others.
The U.S. Housing Market Is Now LOCKED Into a Chronic, Long-Term Depression
Housing starts - the most important measure of the housing industry - is still a disaster zone.
Beginning in January 2006, they suffered their worst plunge in recorded history - from an annual rate of 2.3 million to a meager 477,000 in April 2009. Thus ...
In just three years, 79 percent of America's largest industry, impacting more Americans than any other, was wiped away.
Then, despite a series of government agency programs to shore up the industry ... plus $1.25 trillion poured in by the Fed to buy up mortgage-backed securities ... plusa big tax credit for new home buyers, housing starts perked up ever so slightly: They recovered to an annual rate of 612,000 in January of this year.
But this recovery was so small, it retraced just 7.5 percent of the prior fall. In other words,
Even after massive government efforts, and even at the highest point in their recovery this year, the housing industry recouped less than one-tenth of its historic three-year bust from 2006 to 2009.
Worse, the housing industry has now resumed its decline.
The most alarming factor: Widespread "strategic defaults" on home mortgages.
These are defaults by homeowners who can afford to meet their monthly mortgage payments, but have deliberately decided to stop paying.
They realize their home is worth less than they owe on the mortgage - transforming it into a dead asset they're willing to give up. They know their bank, already overwhelmed with foreclosures, won't get around to evicting them for as long as two years, allowing them to live in the house cost-free. They also know this tactic can give them tens of thousands of dollars in extra cash. So they're defaulting en masse and getting away with it.
End result could be:
- New supplies of foreclosed homes hitting the market.
- Bankers who would rather cut their wrists than finance new homes, and ...
- Perhaps a new slump in housing that's worse than even some pessimists were expecting.
BILL CHERRY, REALTORS
DALLAS - PARK CITIES
Our 45th Year
214 503-8563
Hi Bill,
Very interesting perspective! How do you see the possibility of banks seriously looking at short re-finace VS short sale or foreclosure? This principle reduction will keep people in their homes and ultimately cost the banks less since they can either keep the loan and service it or sell to another bank at a discount. This also cost them less to mitigate in short sale with no agent commissions and far less then foreclosure proceedings and resales. If MI is not part of the pictured underbelly this makes logical sense. I would have thought this option would have already gained traction on the road to fiscal responsibility by banks. It's absurd they don't think of ways to help keep people in their homes and use this tool to help stabilize neighborhoods across the nation while maintaining and even gaining great name recognition. I think the future for banks that get it is golden. We have wide spread viseral opposition to banks due to their unwillingness to help the very families they gladly accepted money from earlier when times were better.
Banks have showed little interest in loan mods and they are now being more difficult on short sales.
Bill, I am in 100% agreement with this viewpoint. A new slump for sure -- prices will continue to decline -- it is inevitable. The word I'm hearing now is deflation! This next year and following year will be the best time to buy. Thanks for the great information,
Lots of food for thought. Now I just need a little time to digest it all.
Bill's statistics on housing starts point to a problem that will kick in as the economy recovers. We're going to be short of new homes. This is a growing country and we just spent a couple years not building enough new homes. This year isn't any better, so when people are going to look around for something to buy in 2012 and later, there won't be enough new homes and prices are going to be pressured upwards. I hope we can manage a smoother transition up than we did on the way down.
It's very hard to figure this out. And now in most cases, owner's can't finance the real estate they sell without having a mortgage loan license.
I am and have always been a serious opponent of branch banking outside of the bank's corporate domicile. It's akin to taking all of your net worth and putting it in one stock. There's no way to squirm if you need to.