With many economists claiming that the real estate market is stabilizing, some are asking, “Is the housing recovery real or imagined?” While there is some data to support an affirmative reply, a careful analysis shows us that the U.S. housing market may still be on life support. I believe it’s still too early to call a recovery in housing, and suggest that we look at some facts.
* Homebuilding stocks are surging.
* New & existing home inventory has fallen to the lowest level in 6 years.
* The median price for a new home increased for second consecutive month.
* Consumer sentiment is at its highest level in a year.
The above reports have some economists and real estate pundits calling for the bottom in housing; and with pending home sales up, Lawrence Yun, NAR chief economist, has predicted that 2012 will see “broad price stabilization or even national price growth.” However, what Yun failed to note was that the good news from the pending sales numbers was mostly due to a downward revision of the December numbers.
The airwaves and blogosphere have recently been filled with articles discussing pent up demand, looming housing shortages and upward pressure on prices, all of which have raised consumer expectations to unrealistically high levels. Such optimism might be appropriate if we had experienced a typical recession; but the Great Recession was far from typical, and the recovery, as it unfolds, is hardly resembling those of past years. Below are the cold, hard facts that make me believe that the overall housing market—and I stress that I am referring to the OVERALL market—will likely not recover for decade or more and that the housing market .
* Government programs to stimulate housing have all failed.
* Although interest rates remain at historic lows, housing demand has been lackluster.
* In most areas move up buyers are practically nonexistent.
* Defaults on jumbo mortgages have risen significantly.
* Foreclosures are expected to remain high for several more years.
* High gas prices will continue to weigh on consumer spending.
* Salaries and hourly wages remain depressed due to pressure on companies to keep overhead low.
* Lending restrictions keep many from qualifying for a mortgage.
* Reduced real spending power of consumer dollars.
Consumers are still struggling to overcome and adjust to the loss of income and net worth during the recession and lack the financial resources to make a home purchase. Adding to consumer woes, rising gasoline prices appeared poised to break through the $4 price barrier, with experts projecting prices to remain high due to dramatically increased Asian demand. Less discretionary income will naturally affect consumers’ willingness to consider major purchases.
And though we have recently seen an improvement in the unemployment numbers, the stark reality is that millions remain unemployed and underemployed. Additionally, a recent Princeton University study of employment during the recession found that those who had lost jobs and later found employment were earning an average of 17.5% less than at their previous job.
Let’s not forget that many of these same “experts” calling for a recovery in housing also did so in 2009, 2010 and 2011; and much of the meager upturn in housing has been at the expense of multi-billion dollar government incentives.
Is the housing recovery real or imagined? The answer is relative. Compared to where the market has been, we are seeing glimmers of hope; but if our expectation is for a rapid recovery of both lost equity and home sales, it’s pure fantasy. The housing market cannot recover as it has following past recessions. It has not been the engine of recovery as it has been following ALL previous recessions; and it will continue to suffer as long as the recovery remains anemic.
Ultimately, what we’re seeing is a housing market struggling to adjust to structural changes that have occurred. Yes, the market is performing well in some areas, and some real estate agents and homebuilders are experiencing robust sales; but the national housing landscape has been permanently altered. A rebound to the heady days of the last decade isn’t in the cards; and the sooner that we—especially politicians—understand that governmental interference only muddles the picture, the sooner we’ll all adjust to our new reality.
Click HERE for my predictions for housing and the economy for 2012 and beyond.
The following two graphs from Calculated Risk paint a vivid picture of how far home sales have fallen and why they have yet to achieve recovery. CLICK ON THE GRAPHS FOR A LARGER VIEW.
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