Real Estate Rebound?

It seems people are so desperate to find something good in the economy that they will ignore a lot of data in order to support their position. A recent article demonstrates exactly what I mean:

After half a decade of witheringsales and slumping prices, there are strong and diverse signs that the single-family housing market is poised for a rebound. In some metropolitan areas, the market has bottomed, with both sales and prices on the rise and foreclosures
on the decline. This contrarian – and largely overlooked – thesis flies in the face of the persistent gloom that has nagged the industry since 2007, when thesubprime crisis flared.

Industry analysts and players cite a number of reasons – some traditional (employment), others unique to the post-credit bubble era (foreclosures) – for the long-awaited sea change. An analysis of industry and government data also supports the forecast.

“It has become increasingly apparent to us that the pieces for a housing rebound next year are beginning to fall into place,” declared Barclays Capital analyst Stephen Kim in a recent note to investors.

Proponents admit that the nascent rebound could easily be derailed, but stress that after years of government efforts to support sales and prices as well as the volatile impact of foreclosures, the market has regained a measure of normalcy.

“With the exception of really hard-hit markets, the vast majority is ready to turn around,” adds Jerry Howard, president and CEO of the National Association of Homebuilders. “The Washington, D.C., area isnot only ripe for recovery, they need to start building units.”

The catalysts to recovery are mostly the same: for potential buyers, residential rents have now risen enough to consider buying; existing-home inventory is the lowest in five years, while that of new homes is at a 40-year low; affordability is at a record high;
delinquencies have peaked; consumer confidence is on the rise ; and job growth is accelerating.

For investors, with a continuation of the gold rally in question, real estate is beginning to look like a viable inflation hedge alternative, while rising rents mean greater profits.

“We believe there is sizable housing demand that could be released into the market,” says Lawrence Yun, chief economist of the National Association of Realtors, NAR. The NAR is forecasting existing home sales will rise 5 percent in both 2012 and 2013; prices will edge up 2 percent in each of those two years, then 4 percent in 2014.

The NAHB is forecasting a 5.1-percent increase in new home sales and a 10-percent increase for new home starts in 2012.

Now let’s examine the sources in the article and the facts impeeding a real estate recovery that they ignore. Do you really think that the National Association of Realtors or the National Association of Homebuilders is going to go off-topic when it comes to their respective industries?

Here are some of the flaws in the article:

1. There is no mention of the vast “Shawdow Inventory” or the amount of homes that have yet to be foreclosed on by banks becasue they would have to take the “write-down” on their books which in effect would make almost all of them insolvent. The government is allowing them to pretend they don’t exist.

2. JOBS without jobs no one can afford to buy either new homes or the foreclosed homes on the market.

3. Washington DC is issuing building permist because the government is the only part of the economy that is expanding which will eventually casue it to implode. You have to have private sector jobs.

4. Tighter credit and undewriting guidelines – not everyone can qualify for a home loan like the previous decade.

Our contention is that the optimism runs a little too high at these organizations. They have yet to deal with the reality of our broken ecnomy.

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