An interview with Chip Case, founder of the Case-Shiller Report, has a great obeservation of the housing market I thought I would share this morning.
“We have to distinguish between a recovery, and stopping the flow of blood,” clarified Case. “We’ve had falling house prices for quite a while, and now have four to five months of stability. That stability is very good for the mortgage market.
“But, if prices continue to fall, then mortgages in 2008 and 2009 turn bad. And if they turn bad, then the financial sector is back in hot water. That’s the big worry. If we can stabilize house prices, though, and get them up a little bit and start writing some good mortgage paper, that will stimulate demand. That will help recovery.”
Case reiterated the significance of house prices going forward, and his cautious view of positive indicators.
“We’re walking on eggs,” he said. “There are a lot of opportunistic signs, but we’re not out of the woods with unemployment as it is and house prices sitting at the bottom but not showing much movement yet. via wbur
Many are seeing the flow of cheap mortgages and government money as the formation of the base, and it very well may be. But one has to be very careful in expecting it to be a true base.
There are a great deal of artificial and external influences that are forming the new housing market base. While these are great for triage, stopping the bleeding to use Chip Case’s term, it does not mean the patient is healed.
Markets want a true base. A natural base. One that will hold up when the paramedics go home and the life support is taken off. For us that means no government subsidies or artificially low interest rates. When a home owner can be assured of making money with their home, or at least not losing money, that is the day we will have a true base and a full recovery.
Until then we are still in the hospital.
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Very good analogy, the housing market along with other economic pillars have been propped up and have to survive some real test before it can be called a recovery.
In my opinion a true recovery won’t happen until we can begin adding a significant number of jobs to the economy. I live in Denver, CO and our employment numbers are starting to turn around. And guess what, our real estate market is one of the stronger in the nation. Let’s focus on job creation and putting people back to work and the rest will take care of itself.
Obtaining a viable news source would also be a welcome addition. Lets not pretend that rival political parties are not playing a role in distorting/disguising data. We have seen no sign that there has been an improvement in the economy, and a slow down in the number of foreclosures can be directly linked to the Fed halting or delaying these proceedings from the banks/lenders. So are the numbers related to real estate in the current economy being manipulated to build “consumer confidence”?
I like how the market is described here. It really does make sense that if we can stabilize the housing prices now, it will help stabilize peoples confidence and in turn, get the market going again. We just have to be careful not to stop the fall of prices to the point that they remain at an artificial level, because it will eventually have to come back down to the real level.
I agree–good analogy. You have to crawl before you can walk. Right now, at least in Austin, many people would claim it’s a buyers market because you can get a lot of house for your buck with falling prices. However, you have to be able to stimulate some demand and stabilize the market. Yeah, it’s business cycle this, business cycle that–but the question isn’t if it will turn back up, but when.
I like your analogy in this article. The real estate economy really is like a patient who you cannot get to stop bleeding. I feel it is due to the inherit risk that is still rampant in the market and the abuse that banks put so many people through. Only time will tell how long these “wounds” of the market will go unchecked.
In my area of Brentwood TN, homes sales have been picking up steadiliy for the past five months. Residential real estate seems to have a hospital stay through April when the insurance coverage runs out…. or when the home buyer tax credits go away and the Fed stops buying mortgage backed securities. That will be the true test of how the patient is doing. I expect things to be a little wobbley at first, but at least we’re past the critical stage.
In the Chester County region of PA, we see the residential market slowly rejuvenating, however, pricing is not coming alongside unfortunately. In the Commercial Real Estate Market, we are seeing some light at the end of the tunnel, but it seems to be about a year off. The big struggle we see right now is all of those Commercial Leases that were signed about 5 years ago are coming due and unfortunately, the market has a completely different face. Multi-Units for Sale with documented cash flow and rental properties appear to be hot commodities at this time: http://tinyurl.com/yhuv6rb
I don’t think we’ll be seeing a recovery anytime soon – especially in the commercial real estate market – let alone the residential market. As a nation, we’re going to be walking on eggshells for a while to come. However, there are certain residential real estate markets that have been doing OK recently and should continue to grow. Hopefully the market will turn around as a whole but until that time comes, investors in residential and commercial markets should be skeptical.
This is a very interesting article, but I have some questions. If the government keeps spending money on stimulus and if we keep printing more money to pay our debts, won’t this have an inflationary effect? Are we going to live the 1970′s all over again?
I had a conversation yesterday with a person who told me that they sold their house in the 1990′s for 13 times more than they paid for it in the 1960′s. That is some serious inflation.
People still desire to own homes. Part of the problem is that the borrowers who were foreclosed on are unable participate in the recovery. Also with the lending guidelines becoming more realistic many people don’t qualify, even for government insured loan programs. Properties in Santa Cruz have dropped but not as bad as other areas in California. Many homes are still priced over 1 million. It can be a challenge to find buyers with a few hundred grand to allocate to a home purchase.
I agree with the comments listed above–people DO still want their own custom modular homes, even if they can’t necessarily afford it. Even though the economy has been in a downturn, people still need homes to live in. It seems that the real estate and real estate development industry will only bounce back once Americans are back to work, and can pay off loans received for custom home building. But at the same time, it largely depends on the city–Virginia custom home builders are busy working away to developing new custom homes for the many people who move to the DC Metro area each year.
What an interesting entry. Thanks for your input!
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