Current economic sentiment is negative, and the recession predictions are rampant. According to Recovery-or Recession? (Bloomberg Businessweek, July 23-29 2012), jobs are down, growth forecasts are being reduced, and manufacturing has declined. These outcomes are already reflected in the stock market. Some of the researchers, noted in Bloomberg, believe our economy is already in a recession. Considering the economic slump with all the possible outcomes, there is still a bright spot for our economic future- housing. Bloomberg states the “S&P/Case-Shiller Home Price Index showed that average home prices rose 1.3 percent in April, ending seven consecutive months of declines”. In my opinion, smart money has moved away from the stock market. More recently, the Federal Housing Finance Agency reported home prices rising 0.8 percent in May on a seasonally adjusted basis, and rising 0.7 percent in April. Overall, from May 2011 to May 2012, housing is up 3.7 percent (FHFA). Even Zillow reported that home prices have increased year-over-year for the first time since 2007 (Marketwatch.com). So I’m positive on housing because prices are down, interest is extremely low, and I know investors are making cash deals. Housing will not stay down, though, especially is Southern California. Looks at the trends… comment and you know how to reach me.
p.s. Sorry for the break in my posts. More to follow…
You are looking at the long-term monthly statistic of the housing supply in the U.S. market. This statistic is presented as a ratio of homes for sale divided by homes sold. The last record for this statistic shows that there are 4.7 houses actively for sale compared to every one sold. The peaks in this chart coincide with periods of saturation where good times and feelings ended and the oversupply drove down the housing market. Note, one would think that increasing supply would drive prices down (this statistic is counter-intuitive). However, the reality is that EXPECTATIONS are what drive markets (i.e. housing) higher and SPECULATION is what drives markets even higher. So, the sharp increases leading to the peaks on this chart can be seen as individuals jumping on the expectations bandwagon… until the last one is left out to dry.
An important aspect of this statistic to remember is that it represents the supply of homes across the U.S. In my opinion, it is safe to say that the Southern California market is not equivalent to other regions except for the obvious New York, Chicago, etc… However, this statistic is still important to keep in mind as it represents the sentiment of U.S. homeowners, and homeowners have not been feeling good for the past 5 years. Taking a simplistic view, it is an investors market as the chart shows the supply decreasing.
Now let’s think about the next 5 years… here are three reasons that I believe good feelings will return for the housing market: (1) a new generation of tech savvy individuals and entrepreneurs (with high expected incomes) that were in college since 2008 are finally graduating, or already working, and have good credit, (2) the supply of houses is about to dry up faster as expectations drop that more people will lose their homes (the homeowners bill of rights PASSED!), and (3) as investors continue to buy up the inventory… they will be forced to pay higher prices due to competition, and the renovated homes will go back on sale for higher prices to cover the increased expenditure of the purchases, and so on… we are creatures of habit <–Check it out.
These are just 3 reasons I had in mind that I could write about immediately. I’m sure there are many more… so share a comment about the housing market expectations for the next 5 years.