Archive January 2012
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CJ's Response to Trulia's 2012 Predictions
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TRULIA 2012 PREDICTIONS:
The conclusions of this article are based on several cause-effect fallacies:
1. that economic recovery will lead to house price increases
2. that lower home prices hurt seller motivation
3. that economic recovery will bring construction jobs
Each of the above “causes” may affect the “results” in a minor way.
But none of these causes are the major reason leading to the stated results.
1. House prices are based on supply compared to demand. Period. House prices will recover when there are more buyers and fewer homes for sale.
2. In many cases, lower home prices make a house worth less than the debt against it so the sale must be a short sale. As prices continue to decline, more and more homes go underwater motivating more and more sellers to sell short or walk from their homes. This increases inventory, continuing the price decline which in turn pushes more home loans underwater motivating more sellers to default. That almost every seller now knows of other families living for free in their homes over a year, defaulting seems less onerous, perpetuating a vicious downward cycle.
3. home construction jobs have to compete with home sales. Home construction cannot compete, regardless of the economic job environment, at much less than $150-$200/sf. When homes are selling for $78/sf, as they are in Rochester, NY, it is highly unlikely construction will expand until home prices have risen high enough for new construction to compete. This will most likely take several more years.
Article Fact Correction: Loan delinquencies are down 16%, not 25%, from their peak in first quarter 2010. (7.35M down to 6.15M) That means over 6M loans are still in the delinquent pipeline. And this number does not include the underwater loans that are still performing (borrowers making their payments).
Missing Article Fact: The downward price pressure of distressed properties has now pushed 11M loans UNDERWATER, 25% of US loan inventory. This is seriously bad news. With 25% of the country’s loans secured by property valued at less than the loan, it is more likely than ever greater numbers of sellers will strategically default. This will lead to even more motivated short sellers furthering the collapse of real estate prices.
Missing Article Fact: Foreclosures and short sales have locked out 6 months to 3 years’ worth of buyers in many markets. This is why the omnipresent low mortgage rates have not and CANNOT motivate these buyers to buy. These buyers can’t get loans, regardless of the interest rate. Markets simply can’t and won’t recover until these buyers can buy again.
Hot Cities Fallacy: connecting home prices and new construction to a smart workforce and high-tech industry is a complete fallacy. These items have almost nothing to do with each other. But unless you really understand real estate, it sounds good, at least at first.
What this means for Agents: ignore this article’s conclusions. Work with me to keep sellers in their homes, bring buyers back to the market and make every city a “Hot City”. (http://occupy-our-homes.info/) A stable real estate market will lead to more buyer confidence, more lender confidence, more property tax revenues, and increased home prices. That will lead to more construction jobs and economic improvement. And that will improve every agent’s bottom line.
CJ Holmes, real estate investor since 1977, broker since 2005, and market analyst since 2007, has personally handled hundreds of transactions, viewed thousands of properties, and dealt with countless agents. She also owns a portfolio of income producing properties, and has developed unique market analyses to determine and predict price trends, which principles apply to markets nationwide. She can be contacted at (707) 578-5727, cjholmes@cjholmes.com, or www.cjholmes.com
