Is This Housing Recovery Real?
Sarah Green explored the persistence of shadow inventory in the American housing market last week. That aspect, plus other variables—the effect of which we can’t predict with 100% certainty since the current conditions are unprecedented —have the power to make- or tank- the country’s real estate recovery.
But for the most part, the consensus is that the nation’s housing market has officially turned the corner. The worst, experts seem to cautiously say, is behind us. Of course, there are two sides to every argument; today, we look at both.
In an essay for Business Insider entitled “The Housing Recovery Is For Real, Deutsche Bank's Joseph LaVorgna stated that "residential housing market is in the very early stages of a durable recovery." He bases his opinion on the fact that the rate of residential investment year-over-year shows strong improvement, and that domestic demand for homes, though having only shown modest growth on the whole in the past several quarters, has indeed grown. Also up: residential construction. New housing starts, plus increased home sales across the nation, act as leading indicators that housing is back in demand. And considering real estate’s importance to the nation’s GDP, this would be good news indeed. Mamta Badkar of Business Insider explains: “LaVorgna says this recovery in housing is important because housing is what led the U.S. economy into a recession, and [it’s enduring problems are] part of the reason the recovery has been so slow.” So, if housing can turn around, so too can the economy.
NPR has also investigated this optimism. In the recent article “Is Housing Recovery Real: Not Everyone is Convinced," Yuki Noguchi cites the NAR’s chief economist Lawrence Yun, who uses “increased home sales, rising rents and low interest rates among several reasons why he's certain the housing market is pointing in the right direction.” He also points to the extremely low inventory in places like Las Vegas, Phoenix and Southern California, and the resulting competition for homes. This recovery is nation-wide. “Across the country, demand for homes is driven by investors as well as millions of families who put off buying a home in recent years until the market started to improve.” And as buyers re-enter the market, consumer confidence returns as well.
On the other hand, many analysts fear the fabled shadow inventory of distressed properties will undo all the progress we’ve made. RealtyTrac, for example, is still concerned with the number of foreclosed properties yet to hit the market. In an October blog, contributing writer Peter Miller asked why “a complete and clear discussion of foreclosures is totally missing from the presidential election campaign.”
U.S. News and World Report also raised this issue, pointing out that unemployment and shadow inventory are both factors that will force bankruptcies and foreclosures back up again. Though as of October, foreclosure filings were down for the third month in a row, the trend "can’t continue." This conclusion comes also from the fact that “Fannie Mae's serious delinquency rates, which track loans mostly made to well-qualified borrowers hit 4.45 percent for single-family-home loans in August, up sharply from 4.17 percent in July and just 1.57 a year earlier.” Other worries include prospective mortgage loan applicants whose credit won’t qualify them to buy a home.
In the NPR article, noted financial analyst Gary Shilling says “he doesn't buy the idea that millions of people have steady enough income to afford buying homes……’They've got to have the ability, they've got to have the motivation, they've got to have the cash, the job, all these other factors.'” Shilling doesn't believe all these factors have really converged for the average American yet. Shilling is among those experts who expect shadow inventory to crash upon the market, and turn positive news about real estate back to negative.
Agree to Disagree?
It seems then the only true consensus is that there isn’t, really, one clear consensus on whether or not real estate’s recovery will endure. But in the meantime, buyers and sellers both are enjoying the market in ways not possible since the crash. And certainly consumer confidence and competitive bidding—both of which we’ve established have returned to US real estate---are important factors in progress.
Anna Marie Erwert writes from both the renter and new buyer perspective, having (finally) achieved both statuses. She focuses on national real estate trends, specializing in the San Francisco Bay Area and Pacific Northwest. Follow Anna on Twitter: @AnnaMarieErwert