Real Estate Information Archive

Blog

Displaying blog entries 1-2 of 2

Housing Crisis Over? Hmmm.......

by Jeremy Larkin

I just came across a very interesing Wall Street Journal opinion column titled as much: "The Housing Crisis Is Over," stating that April 2008 may have been the "bottom" of housing crash that started in late 2005. A pretty wild healine indeed, yet if you take the time to read it I think you will see that this guy's opinion is largely based on fundamentals, not just the wishful thinking of another housing crash victim.

Let's just say that he is right.....prices should start coming back, right? Not so, says the writer: "For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor."

His logic is based on the following key points:

  • The current housing bust is nearly three years old (no longer a new thing)
  • New home sales are down a staggering 63% from peak levels of 1.4 million & ousing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.
  • Residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever.
  • The very same thing that caused the bust will bring it back to life: Affordability. 

"Mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in."

I see some major logic in this guy's argument, and he certainly supports my personal theories that even if sales do increase, values will take a LONG time to recover. (See http://www.gostgeorge.com/blog_post.asp?post=14411)

By posting this I don't for a second imply that I agree with this opinion, but it makes for great conversation. What do you think? Somebody give me their take on this thing!

CLICK HERE FOR THE ENTIRE ARTICLE

I work on a regular basis with a large volume of “expired listings.” As a matter of fact, these clients account for 25% of the Larkin Group’s total sales volume. These are Sellers who spent 3, 6, perhaps even 12 months on the market and their listing term finally “expired” without the home selling.

 

We’ve had tremendous success helping these individuals the next go-around in getting their home sold, which means that I also spend a fair amount of time communicating with potential clients from this group.

 

There are many characteristics that the expired listing sellers share, the main two being that #1 – they still own their home, and #2 – they are NOT HAPPY about still owning their home. They make lots of frustrated accusations about ‘why’ the home didn’t sell….the agent, the market, the brokerage, the weather, the neighbors, even their ex-spouse.

 

However, can I share with you the absolute #1 thing I hear from that group, bar-none? “We are just going to wait for the market to come back...and besides nothing is selling anyway!”

 

Why do they think the market will magically bounce back say, next year? Two reasons:1. Because it would financially benefit them if there were a quick recovery and… 2. because the market has never done this in Washington County before, therefore most people are in denial about the reality of the situation.

 

Homes ARE Selling

First of all, things ARE selling and the world hasn’t come to an end.  225 listings sold last month alone. Add to the fact that there are actually TWO sides to every transaction, (buyer and seller), and you are looking at 450 individuals who bought or sold on a monthly basis!  

 

But I digress…..Many Sellers are frustrated with the disparity between what they thought their home was going to be worth and what is actually is. They are concerned about a “paper” loss, if that makes sense. They want to ‘wait it out’, yet they may be waiting a LONG time. Am I saying that it is a bad time to buy? Well not necessarily at all. I’m just pointing out that statistically, Sellers may be looking for a pot of gold in terms of a short turn-around to real estate values.  Allow me to statistically prove my point.

 

If you look back over the past 10-20 years, US home appreciation has never been above around 6% on a year over year average.

                  US Home Appreciation over past 10 years

Along comes the recent housing boom and we start seeing 30%, 50% or even higher appreciation! As a matter of fact, it was 73% in Washington County over the past 5 years to be exact. The problem is that at the same time, wages were NOT increasing at those rates, and many buyers were getting into loans they could not eventually afford.

 

Fast forward to 2007/2008. Those same buyers now have their loans “resetting” to much higher interest rates, the respective profession they work in is suffering due to the housing market so their personal income is down, and the their home is now worse significantly less than what they paid for it.

 

Add that to the fact that many of the very buyers they need can’t purchase their home because they are waiting to sell their own homes, or can’t qualify for a loan in the current mortgage climate. It’s a vicious cycle, quite frankly, and one that most civilians (a.k.a “Sellers”) haven’t fully considered. Hence their (misguided) optimism.

 

And why should they have considered it? They are, of course, civilians, not real estate professionals. It’s not their job to consider it. It’s mine, and that of other real estate people who take themselves seriously.

 

Segway back to the comments about historical home appreciation. Can anyone really believe that we will EVER see that kind of appreciation again? And if so, is it really going to happen immediately following a real estate crash? No, it’s not.

 

So as Sellers consider their options and look forward to a future market recovery, they should consider the following:

  1. Home values will have to stop falling before they can rise.
  2. When they do stop falling they most likely will remain static for a period of time….could be months, could be years!
  3. Then they will start creeping back up at a conservative pace, say 3-6% annually.

That all summarized, you can clearly see that hoping for your home to be worth more, or even as much as today in the next 12 months is wishful thinking at best.

 

Prognosis:

At the end of the day Sellers may do as they see fit. They are adults and can make their own decisions. For those who don’t need to sell, please leave your home off the market! You're just clogging up the pipes so-to-speak. But my advice to those who want to “wait” for a shorter-term, miraculous turn-around to a currently frigid real estate climate would be this: pack your long-johns, it’s gonna be a cold winter.

Displaying blog entries 1-2 of 2

Syndication

Categories

Archives

Contact Information

Photo of Jeremy Larkin - The Larkin Group Real Estate
Jeremy Larkin - The Larkin Group
Keller Williams Realty
50 E 100 S, Suite 300
St. George UT 84770
435.767.9886
Fax: 435-359-5085

St. George Real Estate - Your premier destination for St. George,Utah Real Estate Listings, Home Values, MLS Search, REO/Foreclosure Info &  St. George Real Estate Statistics.  Serving St. George, Santa Clara, Ivins, Washington, Hurricane, LaVerkin, Toquerville & more! Specializing in REO/foreclosure properties, frustrated Sellers, First-Time home buyers, and Investors. Looking for the most LOCAL St. George, Utah real estate information available? Your search is over!