Buyers in Hiding: The Real Estate Market


WASHINGTON, D.C. – July 9, 2014 – (RealEstateRama) — What’s wrong with the housing market these days is that the future isn’t getting here fast enough. The most prolonged recession since the Great Depression – the 2007 through mid-2009 decline – has been followed by the slowest recovery in our lifetimes.

An economic downturn cannot leave out real estate and the so-called Great Recession–which ended in the summer of 2009–started with a collapse of the subprime mortgage market, a financial boondoggle that upended families, communities and cities, especially in the boom-oriented sunbelt housing markets that served as toxic grist for the collapsing financial mill.

In 2013, the housing market set the pace for the comeback and that comeback stalled, predictably because it wasn’t quite organic enough, which is to say it was lead by home flippers and other commercial buyers who could not resist rock bottom prices preceding a recovery. Just as stocks and other markets tend to put on the brakes when the forces for price inflation are speculative, the housing market recovery only got started when it was already headed for a stall.

The market needed family buyers who would treat a home like a bottle of wine, allowing the value to appreciate over time. Speculators prefer to buy, fix quick and flip, hoping for a windfall or scheming to turn suburbia into a haven for renters. But commercial buyers are, in effect, market middlemen; they add little value to the market, but they jack up prices in a hurry, because they are not there to raise children, construct swimming pools and grill hot dogs. They are there to make a profit.

There’s nothing wrong with making a profit, but when a speculator looks up and down the block and across the street and discovers all his neighbors are speculators, too, it takes a little windfall out of their sales.

Still, some market data is looking good. The especially promising numbers come from the Labor Department, where jobs added reached 288,000 in April and hit 213,000 in May. (June’s numbers are due for release on Friday.) The unemployment rate, a deceiving figure in a recovery, has fallen to 6.3 percent, down from 6.6 percent at the start of the year.

Although a lagging indicator, housing prices jumped 11 percent in April, according to the latest S&P/Case-Shiller monthly index and have come away form their 2011 trough by 22 percent.

But don’t celebrate yet. Besides an ominous slow return of the subprime offerings, lending restrictions are still putting a serious drag on the housing market. It also does not help to have 9.8 million still listed as unemployed, a number that does not count millions working part time, while hoping to find full time work.

A recent report by CNN Money, however, said help might be on the way in the form everyone expects, but nobody seemed to be counting of late. Millennials, which includes young college graduates, have been cowering at their parents’ home since the recession hit, unwilling or unable to fund their own escape from the nest, given the scarcity of jobs and the hard hit market that turned credit expectations into a nightmare.

These young ‘uns have been hunkered down in the parental nest waiting for the market to turn around, so they can take their rightful place in the world of overspending. According to the Pew Charitable Trust, there were 11 million college graduates living at their folks’ home in 2012, and some of them are holding onto funds for down payments, waiting for the time to jump into the market.

CNN warned that this floodgate of potential buyers may only affect a select segment of the market, which is starter housing. It does not bode so well for owners of McMansions that Millennials will soon be prowling around for a home to buy. They may end up in the tony suburbs someday, but they are still just looking for their first homes, in spite of their age.

The Harvard’s Joint Center for Housing Studies said by 2025 the slightly older up and coming crowd could be in the market for 24 million new residences, including apartments, condominiums and homes they expect to buy.

This may create an interesting dynamic for the ready-made home industry, putting firms like Palm Harbor Homes in an promising position, because this is a group that will be better prepared for the market than the average first-time buyer would be.

The average first time buyer traditionally has been a young couple who are receiving a substantial, stable income for the first time. Their careers are just taking off. They have the hopeful spirit that young couples have.

The new crop of first time buyers will be more mature. While they took themselves out of the market for most of a decade, they were able to advance their careers and their incomes and park a larger down payment into savings accounts. This makes them young mature, rather than wide-eyed and impulsive.

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