Real Estate Catastrophe! Or Real Estate Hyperbole?
By Omar Bounds
BREAKING NEWS: The industry that triggered this great recession in the first place
is coming apart at the seams... AGAIN!
The U.S. Commerce Department just reported that all the gains made in home-building activity
since last October have just been wiped out - construction of new homes and apartments just
fell off the cliff:
Between May and June, new housing starts plunged 5%. That's an absolutely astounding annualized
rate of decline of nearly 50%. At this rate, HALF of all home construction - and construction
jobs - would vanish in a year!
Plus for companies involved in building condos and apartments, things are even worse: Their
activity plunged 19.3% IN A SINGLE MONTH!
Bottom line: This could NOT be a more serious blow for the U.S. economy. After all - it was
the housing bust that drove foreclosures sky-high and pushed our largest financial institutions
to the brink of bankruptcy in the first place.
OR NAR economist expects stabilization in 2010. The National Association of Realtors' chief
economist, Lawrence Yun, Ph.D., told his constituency at the NAR convention here that the
national real estate market should stabilize in 2010.
He got a big ovation from a packed ballroom at the San Diego Convention Center this morning
when he heralded the "power of the NAR" for successfully encouraging Congress to extend the
$8,000 first-time home buyer tax credit. As a result, "the credit is working better than first
projected," Yun said. "It now looks like we'll have 2.3 to 2.4 million first-time buyers this year."
OR New data: Home inventory rises as prices continue to get slashed!
All three of these headers appeared on industry newsletters over the last few days. My inbox is
full of such weakly. But what is the truth? Which statement can one trust to make a real estate decision?
ALL Three statements are TRUE & All Three are also Hyperbole.
And there in lies the 2010 Real Estate Dilemma.
1. New home construction is at the precipice, ready to fail as an industry. A large swath of the
nation's unemployment number relates to that fact. Yet in my own zip code, a long stalled 55 & over
apartment tower is currently under way and moving forward at a brisk pace. Once competed will it sell
or sit? Will a run by local empty nesters from their too big and overtaxed single homes push that local
inventory over the tipping point? Seems that the value here will get punished by success or failure
of this project.
2. NAR chief economist Yun's numbers are also correct, but also hyperbole. All I can say to the so
called success of the tax credit is, "so what"? What is the net result of an $8,000 tax credit in the
overall picture in the purchase of a property in excess of $200,000.00 and was offered to a very small
sector of the buying public? But it did get some people in the market and the numbers reflect it.
3. With the withdrawal of this credit and the usual summer lull in sales, prices are falling again.
Sharply. Despite the hype over the credit, real interest in housing hasn't returned.
4. For commercial real estate, multiply by a factor of 3. It hasn't had any of the attention that housing
has received and is outright foundering with no relief in sight.
Yet, despite all this negativity, a family member recently successfully marketed their attached home and
traded up to a larger single property to accommodate a growing family. No tax credit was involved by either
party and the price paid in both transactions reflected fair market value. Nobody got rich in the deal, but
no one was distressed by it either. All were in positions whereby they COULD accept current market value.
I said in March that if one didn't sell by May 31st, that they won't be able to sell until September or later.
I appeared to have been right. On June 1st, I said that if you bought in the last 1/2 of May, you probably paid
too much and if the deal relied on a tax credit to qualify, you will be underwater by August. I believe that
will be proven to correct as well.
Hyperbole? No, because there are always exceptions. Some markets have stabilized, but not due to the tax credit.
Are we "at the bottom"? Depends upon where you are standing and what you are standing on.
We are still in a market whose overall price trends are "lending limited".
Uncertainty is still a dominate market influence. For sellers, time on market will now return to the front burner.
Omar P Bounds III; President & Lead Auctioneer, The Bounds Auction Company is a PA & VA licensed auctioneer &
a licensed Real Estate professional in PA & New Jersey. He holds the professional designations Accredited
Auctioneer Real Estate, Certified Estate Specialist & Graduate Personal Property Appraiser of the National
Auctioneers Association. The Bounds Auction Company specializes in Real Estate auctions & estate services
and serves the Mid Atlantic region directly from their offices in Jenkintown Pa., and nationally via a network
of associated auction professionals. http://www.boundsauctions.com
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