From a small northwestern observatory…

Finance and economics generally focused on real estate

Archive for November 21st, 2011

Bottom, bottom, who can find the bottom?

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In the owner-occupied housing sector, a “bottom” seems to be like the weather — everyone talks about it, but no one seems to be able to do anything. I’ve been positing that a “bottom” (or at least “stabilization”) won’t be a reality until we get some sort of stability in the home ownershps rate, which has been creeping downward for about 5 years. If that stabilizes (and my own projection is somewhere between where it is — about 66% — and 64%), then prices will have the necessary demand stabilization to perk up.

Money Magazine, on the other hand, says “lo, the bottom is nigh”. Specifically, they say that in the coming year, 95% of home-ownership markets that they track will begin to rise. Caveats about, of course — “The median expectation among more than 100 economists and real estate pros surveyed by MacroMarkets is that home values will inch ahead by a mere 0.25%, compared to their 2011 median forecast decline of 2.8%. They also foresee annualized gains through 2015 of just 1.1%, as the real estate market slowly works its way through a mountain of foreclosures.”

Why the continued sluggishness? The folks at CoreLogic tell us that the “shadow market” is 5.4 million homes, including bank-owned properties, homes in the foreclosure pipeline that haven’t hit the market yet, or properties where owners are seriously behind on payments. Now, compare that forecasts from FreddieMac that the entire market for homes in this coming year will be 4.8 million, and that a 6-month inventory of available properties is generally thought to be healthy, and you can see the supply-demand imbalance.

Mark Fleming, chief economist over at CoreLogic, uses the analogy of a flood. “The water is very deep in the living room, but it’s no longer getting deeper and is starting to recede.”

Written by johnkilpatrick

November 21, 2011 at 9:24 am

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