Real Estate Turning Around?

[frodo82801]

http://townhall.com/columnists/RogerSchlesinger/2008/06/10/its_turning_around!

The good news is it is almost August, allowing us to compare year-to-year average prices of homes without much jumbo loan participation. 2007 to 2008 will be apples to apples, and the results will be refreshing: rising average home prices. How do I know this? Demand is picking up all over this nation as the investors and the risk-takers have stormed the housing market to capture the incredibly low prices. They have seen the three main factors that will bring a housing upturn.

1. The need for housing to facilitate the ever-expanding population.

2. The weak dollar giving huge discounts to foreigners who wish to buy our real estate.

3. The rise in the price of commodities that make replacement and new construction more expensive than the price of current housing.

And so the demand for housing will soon change from a trickle to a slow stream to a moderate current and eventually to a flood. The average person will watch and wait, all the while muttering, "It isn't time yet." This could go on for several years and basically rules out "Joe Average" for any potential profit. Some will venture forth because they realize that "close to the bottom" is about as close as anyone will achieve. But many others will want to move forward but simply do not know how.

[frodo82801]

Anyone else think that real estate, or anything else, is going to turn around?

[chel0524]

I don't see how. Credit is being cut out for so many. I guess for those that have excellent credit, it could be a good buying time.

[Rondaben]

Not even close.

There is another 30-50% down in the cards. Most of that won't start falling in earnest until this fall. Here's why:

1. Most reports in the contry show a large outstanding inventory of homes. Add into that the rapidly increasing amount of foreclosures that are in the pipeline and you have more than a 12 month inventory. No room for prices to increase while the supply is so high

2. Builders are continuing to build adding to the supply overhang. The real surge in foreclosures hasn't hit the market as many of the larger banks are not foreclosing or are slowing down the process so as not to drive down the REO (bank owned, reposessed properties) prices at auction. As we get to the end of the year they will reverse this trend to count these business losses as tax break right-offs.

3. The dollar continues to go down in value, spiking oil and food prices as well as everything that has those as a component. Electric, natural gas, heating oil, transportation all will take an increasing amount of the pie from already strapped consumers. Foreclosures will dramatically increase as will default on credit cards, auto loans and consumer revolving credit. Companies retail sales will plummet as people stop spending. Layoffs, further explosive growth in unemployment and inflation make things worse. Commercial construction and business spending is reduced dramatically

4. Banks, facing expanding losses on mortgage backed securities, credit card default, and commercial spending face ever expanding losses. The rate at which they are swapping these bad debts for treasury notes via the Fed term auction facilities will increase.

5. The Federal Reserve in the 6-12 weeks will have lent out the last of it's remaining ~450 Billion in treasury reserves (currently burning through them at 50-75 Billion per week). The Treasury will issue new bonds to be bought by the Fed with "created" money. Inflation will spike horiffically.

6. Wars in the middle east will occur pushing oil to near $250/barrel. The economy will sieze.

As painful as what has transpired thus far economically has been, we are only in the second inning of this. When will these things happen? Of course, no one knows. I, however, expect that the strike on Iran will occur sometime in the August-October timeframe. Probably about the same time the Fed starts printing money to buy treasuries to try to keep the financial sector from imploding. If there is a war, they will be able to blame spiking oil prices, dollar collapse and commodity shortages on Iran and not on the hyperinflationary actions of the Fed and US Treasury.

[jds6958]

Not even close.

There is another 30-50% down in the cards. Most of that won't start falling in earnest until this fall. Here's why:

1. Most reports in the contry show a large outstanding inventory of homes. Add into that the rapidly increasing amount of foreclosures that are in the pipeline and you have more than a 12 month inventory. No room for prices to increase while the supply is so high

2. Builders are continuing to build adding to the supply overhang. The real surge in foreclosures hasn't hit the market as many of the larger banks are not foreclosing or are slowing down the process so as not to drive down the REO (bank owned, reposessed properties) prices at auction. As we get to the end of the year they will reverse this trend to count these business losses as tax break right-offs.

3. The dollar continues to go down in value, spiking oil and food prices as well as everything that has those as a component. Electric, natural gas, heating oil, transportation all will take an increasing amount of the pie from already strapped consumers. Foreclosures will dramatically increase as will default on credit cards, auto loans and consumer revolving credit. Companies retail sales will plummet as people stop spending. Layoffs, further explosive growth in unemployment and inflation make things worse. Commercial construction and business spending is reduced dramatically

4. Banks, facing expanding losses on mortgage backed securities, credit card default, and commercial spending face ever expanding losses. The rate at which they are swapping these bad debts for treasury notes via the Fed term auction facilities will increase.

5. The Federal Reserve in the 6-12 weeks will have lent out the last of it's remaining ~450 Billion in treasury reserves (currently burning through them at 50-75 Billion per week). The Treasury will issue new bonds to be bought by the Fed with "created" money. Inflation will spike horiffically.

6. Wars in the middle east will occur pushing oil to near $250/barrel. The economy will sieze.

As painful as what has transpired thus far economically has been, we are only in the second inning of this. When will these things happen? Of course, no one knows. I, however, expect that the strike on Iran will occur sometime in the August-October timeframe. Probably about the same time the Fed starts printing money to buy treasuries to try to keep the financial sector from imploding. If there is a war, they will be able to blame spiking oil prices, dollar collapse and commodity shortages on Iran and not on the hyperinflationary actions of the Fed and US Treasury.

I couldn't agree with all of that any more. You and Issachar have an amazing talent to pen thoughts in such way that they are both concise, informational, 100% valid, and easy on both the eye's and brain.

Just wanted to say thanks!

These "optimistic" articles are becoming more infrequent. Imho, that speaks to confidence, or the lack thereof, I'm afraid that these concerns (that I also share) of Fall 2008 being a pivotable and painful period are rather warranted.

[Rondaben]

I couldn't agree with all of that any more. You and Issachar have an amazing talent to pen thoughts in such way that they are both concise, informational, 100% valid, and easy on both the eye's and brain.

Just wanted to say thanks!

These "optimistic" articles are becoming more infrequent. Imho, that speaks to confidence, or the lack thereof, I'm afraid that these concerns (that I also share) of Fall 2008 being a pivotable and painful period are rather warranted.

Thank you :)

[stonewallfan]

Sold my home in 8 days with 3 offers on the table. I guess it depends on a local market.

[RememberTheName]

I'm actually looking to sell my home sometime next year, after we finish fixing some minor problems. I just hope it'll sell quickly...

[frodo82801]

It's always darkest before things trend up. The old saying is that if your taxi driver is giving you stock tips, it's time to get out. If your taxi driver is complaining about the worst market ever, start looking for bargains.

The one wild card in all of this is the election. If Obama takes the helm, I think we could suffer a depression. If McCain wins, he wants to do stupid things like not drill in ANWR and address (non-existent) man-made global warming, but he's not as inclined to tax.

Cap and trade will ruin the economy.

D.C. just doesn't get it.

[AlphaOmega7]

Funny. They said the same thing about the Great Depression too. The water carriers those days said the Depression would end quickly. Heck some of them didn't even want to acknowledge that it was a depression.