The TRUTH About The Housing Recovery

Local housing trends will impact your business in 2011-12. What’s your next step?

As we continue to emphasize, the problem in housing is DEMAND related. Despite all hope to the contrary, this problem is not going away.

Until the unemployment problem is solved with significant job creation, U.S. demand-supply imbalance will drive home prices down further across the United States.

The people on your TV keep preaching about the low interest rates, but interest rates are irrelevant if Americans can’t qualify for the loans.

The ability to qualify for and obtain these loans requires:

1. A job with stable income;

2. An acceptable credit score to insure against risk of future default; and

3. A down payment of cash to mitigate risk in the case of future default.

The arithmetic is simple, but sadly, not enough Americans have the above three basic requirements. The number of Americans that are CAPABLE of purchasing a home is nowhere near close enough to absorb the current (and increasing) inventory of homes.

THE RESULT: With the exception of a few markets, home prices will continue to fall across the U.S. through 2011-12. If you need to sell your home in the next 24 months, sell it now!

It is the land underneath the U.S. housing stock that is deflating. It will continue to deflate. Home price appreciation will only occur in the few U.S. markets where there is solid job growth and no significant inventory of discounted developed lots left – (parts of San Antonio are an example).

The reality today is there is a huge backlog of “underwater” homes that have been “pushed forward” with loan amendment/extensions where possible. In some cases, banks are accommodating live free but pay the utilities lifestyle.

There is no hope to accomplish a sale at current the house price held on the banks balance sheet. For many who can’t amend or extend their loan it will cost the banks less to let delinquent owners “squat” than to foreclose, resell, and take a price loss. It’s better to have someone not pay the mortgage but pay the utilities and maintain the property.

Not many were amending or extending loans in the start of the housing crisis, despite STRONG encouragement from the government. REMEMBER?

Time for the white hat…“Mr. Homeowner, how would you like to continue to pay us money on a home that isn’t going to be worth your monthly payment (albeit reduced)? Forget the fact that you can rent a nicer one for less. You were dumb enough to take out the mortgage originally; surely you’ll go for this terrific extension. An opportunity to pay even more money into a devaluing asset we really own!” Thanks for nothing, guys.

The new problem, partially created by the banks not dealing with this MUCH EARLIER when there was more political will for government partnership, is that the desperate American mortgagee has become “street smart” over the past two years. Desperate people do desperate things.

Many homeowners are taking a lesson from the banks….they are pretending they don’t really have a mortgage. In many cases, the banks are pretending along with them. Are the banks in denial? Absolutely not.

Don’t be fooled though, there is another wave of foreclosures coming, and unlike the first wave (which was concentrated in lower end home subprime loans) the next wave will be option ARM, jumbo, and alt A loans foreclosures in the higher price ranges!

Bottom line: house prices will continue to drop into 2011/2012, with the exception of the few market types mentioned above.

Local housing trends have an impact on your business in 2011-12.

What’s your next step?

Remember: “30 –day delinquencies are very closely tied to first time claims for unemployment insurance. The number of first-time claims fell through most of 2009, but leveled off in 2010; and have started to rise again. The increase in unemployment directly impacts mortgage delinquencies. Second, some percentage of the loans modified over the last several years has become delinquent again because those borrowers by definition have weak credit.”

Your immediate next step should be to measure the unemployment rates, mortgage foreclosure risk and housing trends (sales price, volume, price per square foot) directly around your business

locations. If your concerns lead you to confront a major decision on a business location use solid information to inform your assessment, such as The 3L Score.