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Latest Real Estate Market – waiting for Superman

Posted on | February 28, 2012 | No Comments

Here in the United States, we are now involved in the fifth consecutive annual loss in the real estate market. Prices, on a national average, fell another 4% during the fourth quarter of 2011 which put average single family home prices at the price points of mid 2002.

The most recent Standard and Poor’s/Case-Schiller index showed that home prices in the top 20 metropolitan areas in America fell 4% in January, more than the 1.3% decline in this past December (2011). A few of the cities that make up the Case-Schiller index did better than the aggregate. Phoenix and Miami showed monthly gains. These findings were based on December 2011 data. That 0.2% upward pop in Miami and the 0.8% blip in Phoenix could possibly reflect buyers chasing sunshine and better weather. Atlanta, on the other hand, did not perform as well. Atlanta’s housing numbers were down 1.8% over the previous month. Detroit, sadly, was down 3.8% on a lackluster set of sales stats.

In the past five months, United States housing prices have declined at an annualized rate of more than 6%, according to Dean Baker, director with the Center for Economic and Policy Research, a trend he said is especially troubling. This prolonged house pricing slump continues to restrain America’s economic recovery and limit the effectiveness of Federal Reserve policies, Ben Bernanke said this past Friday (February 25, 2012). “The economic recovery has been disappointing in part because U.S. housing markets remain out of balance,” the Fed chairman said in prepared remarks at the International Builders’ Show in Orlando, Fla. Bernanke’s speech came a day after five of the nation’s largest banks struck a deal with 49 states to settle charges of abusive and negligent foreclosure practices dating back to 2008.

Foreclosures can and continue to devastate existing housing markets. Properties repossessed by the banks, called REOs, sell for 25% to 50% less than non-foreclosures. Each foreclosured property, regardless if it sits in an otherwise foreclosure-free neighborhood, will impact surrounding house values in CMA’s (comparable market analysis) prepared by agencies or real estate agents in attempts to market non forclosed homes within a six to ten mile radius. For example, in a neighborhood like 32811 in Orlando, Fla., which counted 275 homes with foreclosure filings in just one month last year, home prices have plunged dramatically. One three-bedroom in the area is currently listed for just under $40,000, for example. In 2005, that same home sold for $120,900, according to Orlando real estate agent Jerome Baker.

Certainly, this crisis is not only a Presidential “talking point” but also a very key political issue within the daily government circles. In a presentation to the Federal Reserve on February 28th, 2012, Governor Elizabeth A. Duke stated, “An ongoing imbalance between supply and demand exacerbates these problems in the housing market. For the past few years, the actual and potential supply of single-family homes for purchase has greatly exceeded the effective demand, in part because of the large number of homes that have come back onto the market after moving through the foreclosure process. The elevated pace of foreclosures, unfortunately, is likely to be sustained for quite a while and therefore will continue to put downward pressure on home prices.” She went on to elaborate the pieces of the puzzle by saying, “At the same time, a host of factors have been weighing on housing demand. Many households have been reluctant or unable to purchase homes because of concerns about their income, employment prospects, and the future path of home prices. Tight mortgage credit conditions have also prevented many households from purchasing homes. Although some retrenchment in lending standards was necessary and appropriate given the lax standards that prevailed before the crisis, current lending practices appear to be limiting or preventing lending even to creditworthy households.”

Warren Buffett recently gave a rosy housing market forecast for beyond 2012 in his annual letter to his shareholders,”Housing will come back – you can be sure of that”. His speculation was targeting the “long term” housing market which is purely driven by supply and demand. “Demographics and our market system will restore the needed balance – probably before long…I believe pundits will be surprised at how far unemployment drops once that happens. They will then reawake to what has been true since 1776: America’s best days lie ahead,” said Buffett. Warren Buffett did not explain what “probably before long” meant in terms of a specific timeline, however. He openly admitted that the last time he made such a specific prediction was when he said last year that “a housing recovery will probably begin within a year or so” – he turned out to be “dead wrong.” Ben Bernanke suggested to formulate a plan that would turn foreclosed properties into single family house rentals which could help to unload some of the excess housing surplus in some markets. “With home prices falling and rents rising, it could make sense in some markets to turn some of the foreclosed homes into rental properties,” he said. But it’s not a “silver bullet,” he added. For that matter… he is not the super hero with a flowing red cape and the United States housing market is still “waiting for Superman”.


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