June Home Sales Up - The Great Re-Pricing Continues
Existing home sales rose this past June for the third consecutive month, an increase of 3.6% over May 2009 and only .02% lower than the home sale numbers for June 2008. Of significant note, 31 percent of all the existing home sales across America this past June were either foreclosures or short sales.
Think about that for a second... Nearly one of every three homes sold last month was sold for less than what was owed to the lender. According the the National Association of Realtors 4.89 million homes were sold in June, meaning 1,515,900 times the banks agreed, or were forced, to take a loss. To put this in perspective, if you sold every home in New Hampshire, North Dakota, and Vermont for less than the owners paid, you would still have to sell all of the houses in Wyoming for a loss before you reached the same number of losses the banks took in June. These figures are simply staggering.
But what does this all mean to home buyers and sellers? If you are a homeowner in Southern California and purchased your house within the past seven years, it's very likely that your home is worth less that what you paid. Worse yet, if you borrowed 90% or more against your house, you owe the bank more than it's worth. Understanding that most families buy and sell every five years this means that if you bought around 2004 or 2005 you're likely to consider moving. If you wish to do so, the statistics show you won't be leaving with any money and you will have to convince the bank to take less or face foreclosure.
If you haven't lost your job, don't have a loan that resets to a higher interest rate, or if you aren't paying less than the full monthly freight (see negative amortization loans), you may decide to stay. That is unless you face a personal reason you must move, like job shifts or other personal family matters. Unfortunately for many this choice is not that simple.
Many families live month to month. Even the slightest shift in income can offset the ability to pay for the most basic of needs. Gas, heat, food, all become difficult purchases, and the largest expense, our mortgage payment, becomes nearly impossible to meet.
As our recession continues, each of us becomes less insulated against the downturn and we begin to see how interwoven our economy has become. How dependent our upper-middle and upper class families are on the large consumer pools found in the lower and middle class working families. When greater America stops buying goods, the business owners who sell them quickly fold. Even the most mighty of companies begin to falter.
However, Americans are opportunistic people. The drive to succeed and freedom to do so make us a unique and resilient nation. When faced with adversity we re-think the problems and find a new solution. Eventually a new brand of commerce emerges from the ashes and people get back to work. The solutions are rarely dictated by oversight committees or government intervention rather, they are driven by the force of the American will and the desire to survive. What emerges from this will is a firm footing and return to sound fundamentals.
In commercial real estate this translates into investments that generate income based on actual information, not speculative projections. in housing it means that borrowers and home-buyers rely upon their actual ability to pay the mortgage as compared to the the ease at which they can borrow money to make their housing decisions. In city planning it means that public funds will go towards projects of need not political fancy. Finally in development it means that the Field of Dreams mentality has left the building. Now you only build if they're there....
Ultimately the result is the continued re-pricing of America. The need and desire for real estate assets does not dissipate or disappear, it simply expands or contracts as needs shifts within our economy. Many factors continue to challenge the real estate industry and many concerns are yet to be addressed. Amid the chaos, slivers of light continue to find their way through the clouds.
This weeks home sales figures indicate a convergence of two key components of the housing market - the desire to buy and the ability to pay. Without a willingness on the part of consumers to place their funds, transactions do not occur. Without the ability find those funds even the most determined consumer cannot buy. America's housing market, which led us into this recession, seems to be telling us that we may have found a bottom. Even though lenders have tightened the purse-strings and job losses abound, prices have dropped to a level where more of us are willing to take the plunge into home ownership, more and more with each passing month.
But what about those foreclosures? First, it's important to note that we are not out of the woods yet. Many homeowners still face foreclosure and many banks hold large inventories of non-performing assets. Second, pace is a very important factor. We are in the peak of of the summer home-buying season and banks have slowed the pace at which they foreclose or deliver REO properties to market. If banks dump foreclosures en masse on the marketplace when home buyers all but disappear in the winter months we may see reversal of trends.
For now, if you feel it's the right time to jump into the home market, you're not alone. If you've waited and watched over the past five years wondering if you'd ever have a chance at the American dream, feel vindicated that your chance is now before you.