Are We There Yet?
Parents are familiar with the question posed above by their children who have lost all patience with the long range journey.
The same question comes to mind for those people who have been hoping to avoid filing bankruptcy by riding a rebound in the Real Estate market.
Why does the current Real Estate market play such a major role in the Bankruptcy world today? Because contrary to indicators that are starting to appear, Real Estate is once again becoming the darling of the masses. Realtors, Title Agents and builders are all screaming that prices are going up and it’s time to buy before they go up further. How familiar does that sound?
The pundits point to the reduction in inventory but fail to mention that investors (cash) sales are lower than at any point since the height of the foreclosure crisis. Owners that could be selling to get out from under are “holding” to try to recover some of those “profits” they feel they lost when prices collapsed; and there are occasional reports of “competing bids” resulting in sales contracts above list price.
According to a recent report by CoreLogic, a highly respected global leader in property information and analytics data, foreclosures are down 23.2% from a year ago, and foreclosure rates on post-recession loans are back to pre-recession levels.
Yet, an opinion piece in “Market Watch” argues that “The seeds of the next housing crisis have already been planted.” They cite:
- A rebirth of seminars on “flipping houses”;
- Surges of up to 30% prices increases in select areas;
- “Quick” mortgages;
- We’re almost back to 0% down mortgages;
- Reduced incomes from lower wage jobs are replacing those lost during the recession; and
- More baby boomers are scheduled to “leave us” than there are Millenials schedule replace them.
In addition, investors are beginning to make profits by returning properties to the market that were acquired earlier in distressed and foreclosure sales. Could this be simple “profit taking” or an indication that “the smart money” is seeing a topping in prices?
New home markets are no more encouraging. The NAHB (National Association of Home Builders) has been cheerleading the “recovery” of the home building industry’s positive quarterly gains for the last 4 years; however closings slipped 5% in March of this year for an annualized volume of 511,000 units nationwide. This compares to 1,600,000 units per year for the 10 years leading up to the collapse starting in 2007. These numbers represent national totals, yet when the South Atlantic region is broken out, it alone slows prices slipping -0.7% according to a recent news release of the Federal Housing Finance Agency, one of the many warning signs that housing values could be in for an adjustment – again. While it appears the local markets may be an exception in the region, a realistic assessment in the position of individual homeowners is in order. Like the vacation mantra on television ads: “Should I Stay or Should I Go?” is a question many homeowners should give serious consideration to.
Before the collapse, every $100 increase in home value resulted in $3 in consumer spending ultimately funded by Real Estate equity loans and refi’s. Since the collapse, $100 increase in value results in only $1.20 in consumer spending. Add to that tougher lending standards in Real Estate lending, funds used to pay down debt, rather than on more consumer goods. Moreover, given the massive number of foreclosures, there is a sizable reduction in the number of homeowners who can benefit from value increases through refi’s and HELOC’s.
What does all this mean? It means that wealth from increases in Real Estate values has been reduced by more than half while at the same time that “paper wealth” is now far less accessible. Lenders are far more restrictive, and refi’s are harder to get. Thus, Real Estate values are just as likely to retract again as they are to increase once a certain amount of saturation has been achieved. To avoid ending up in the same “upside down” position so many found themselves in during 2008 through 2012, now may be the time to get out from under.
While conditions currently imply Real Estate is back, failure to heed old warnings or use current market conditions, to unload may just be the catalyst that “breaks the camel’s back” and ultimately throws “holdouts” into the bankruptcy they have struggled so hard to avoid. It may be time to consider one other old saying: “Buyer Beware”.
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