It’s that time of year again.
Yesterday, I spent 30 minutes on the phone with a reporter who wanted to know what I think the housing market will look like in 2011.
For reporters and editors, the end of a calendar year is a terrific time to look forward. Not only will making projections eat up a huge amount of space (just think about the permutations of looking forward), but it allows journalists to be somewhat intellectually lazy. It doesn’t take much imagination to call up and ask so-called experts (or just ordinary folks) what they think will happen next year.
But year-end projections are wildly popular with readers (or so the thinking goes), and so around this time of year everyone starts to look forward.
I won’t make you wait until the article comes out to find out what I think the housing market will look like next year. Here’s my bottom line: It’s all about jobs.
The lack of good jobs and the continuing levels of incredibly high unemployment have made this an extremely painful recession – the most painful in decades. There are a lot of people who are out of work, and have been out of work for a very long time (years in many cases) and there are those who are earning a lot less than they were two or three years ago.
No one in Washington, D.C. seems to have a good idea of what to do about this lack of jobs business. But as I explained to the reporter, if you don’t have a good job that pays all of your bills, you can’t make your mortgage, insurance and property tax payments. And if you can’t do that, you can’t buy a house (new or existing).
The lack of employment is directly tied to another big housing market problem: Foreclosures.
Millions of homeowners who lost their jobs or took a massive pay cut have now lost their home to foreclosure. These foreclosures have devastated neighborhoods, causing blight and increased crime. They have also devastated the budgets of municipalities nationwide. How are our cities, towns and villages supposed to pay for needed services (like firefighters, schools, water, sewer and garbage) if half the homeowners have abandoned their properties or been foreclosed upon and have stopped paying their property taxes?
Here’s what I think the housing market will look like in 2011: More of the same. We’ll see more foreclosures, maybe even home prices declining more in some areas. We’ll see home sales stay about where they are now, even with the Federal Reserve’s $600 billion QE2 (bond-buying program) to lower long-term interest rates from the record lows of today.
At the end of the conversation, the reporter said, “Wow, this is sort of depressing.”
What did you expect, roses?
Please leave your comments on the blog.
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there are no good jobs because most manufactured goods/items are now made overseas. All these U.S. companies are exploiting the American masses by using cheap labor overseas then selling these same goods here at American prices. Pathetic!!
We all look to the numbers but what I think is lacking in the situation is the nubers of families being misplaced and not knowing what to do or where to turn. We have millions of empty houses and homeless people, what is wrong with that picture. Bankers have become bullies and we have lost our abiltiy to think outside the box. Once someone loses their home, families fall apart, more people turn to the goverment for help, it seems like there should be a way to break the chain before it continues to get worse. We are AMERICANS we have bright minds… this is a CRISIS and needs to be handled as such. Think if tongiht you were not able to sleep in your bed, how you might feel, that is how each and every one of us should think. We are blessed if we have a roof over our head. The real estate community should pull together, get a think tank and bring some ideas forward. These are peoples Homes and Homes is what we are all about!
Residential Real Estate, Commercial Real Estate….
The American economy is very resilient and over the past decade we’ve made it through some tough ups and downs where some people made money and some people got burned. As the market goes up – there are a lot of “con artists” stating that the economy is sound and can reach even new highs (remember the dot-com bubble, and the credit-era of 2007?). When the market is super hot and everything is going up – investors can quickly become infected with greed and FOMO disease…(Fear Of Missing Out). Only to be dissapointed when the market comes crashing down and they’re stuck with something they paid too much for.
On the contrary, when the market is in a deep recession or depression – similar to the one we just came out of or are currently in – these same “con artists” pop up again. This time around they tell you that interest rates are so low and property is cheap…and you need to buy now before everything goes up. Or they may tell you that you should get out of the stock market because everything is crashing down and you need to put your money in bonds. Maybe they say you need to trade in your gold metals in return for declining-in-value paper dollars. Should you believe them? Who do you trust?
You must learn to trust yourself…that gut feeling…or second thought that we have and so often choose not to listen to. Also we must do our own research and use some common sense. Let me elaborate on residential real estate….
During the 2007 credit-era, banks were allowed to lend out money on an 10:1 ratio… that means if a bank has $1 million dollars of actual cash in its vaults – they are allowed to “create” or lend up to $10 million dollars for mortgages, car notes, and various other small loans to give to consumers…they’re able to do this because the money is “backed” by the full faith of the bank not going broke or “failing”…(some banks are deemed “too big to fail”…remember?) Even though they failed us anyway…nevertheless…because the banks had so much (paper) money to lend, they were willing to give it away to whomever had a pulse and simply asked for it (i.e., home builders).
Builders got loans to start residential construction…even if they didn’t have enough home buyers to move into the properties. So what happens to the newly built homes? Investors rush in to flip the properties….to other investors foolish enough to buy it from them….and the cycle goes on until the price of the house doubles, triples, or even quadruples…then the price comes crashing down. Today, we have several of these types of properties on the market for dirt cheap, as well as foreclosures…but still not enough buyers. I think it’s funny how there are some investors looking for new home construction as a sign that the economy is back…lol.
New home construction will not solely be a sign that the economy is going strong again…but for those investors looking to “get in while the gettin’s good”, they should also be prepared to hold these assets for about 5-7 years before even considering to sell again. If you’re just looking for a good rental – then look hard….don’t just buy the first thing because it’s cheap.
A good sign that the economy is returning to full swing might be to take a look at commercial real estate…you know, strip malls, hotels, business offices, shopping centers, etc. Might not be a bad place to invest your hard earned money if you haven’t already. Why? Because the US is still a consumption based economy – so business travel will soon pick up as a sign that corporations are earning again (I’m currently writing this article while on business travel). People will want to start enjoying those very much needed vacations again (the airline industry is a good investment as well). Don’t believe me? Take a Saturday and drive up to your favorite outlet mall this wknd and look at how full the parking lot is.
Trust your own instincts…do your own research and learn about Investing 101…if you need help, find a tutor or someone offering an investment class.
The consumer is slowly coming back around…and the bulls are starting to see red (or in this case, green).
I agree with everything you are writing. However, daily, I remind myself that we are still better off than many of our global cousins: We do not have famine; most of us have food. Most of us live with real roofs over our heads not under tarps. We have clothing and ways to stay clean. Some of us yell at our opposition, but for the most part, we do not physically hurt them. Will things change fast? No. It took nearly a decade to dig the hole we are in. We are struggling to find the tools to get us our of the hole. It’s depressing, but there are things in the world even more depressing. We need to keep life in perspective.
Ilyce, You are right on with your analysis. When you first posed the question, my answer was also “more of the same”. If government programs encourage business to invest in equipment and people that will help. Making loans available to small business for those businesses that are worthy will promote growth.
Very nice job on your report! Thank you for holding up a light to our reality without that irksome spin.
Hi, hearing under the table mention that Obama’s Deficit Task Force is discussing an attack on the Mortgage Interest Deduction. Wall St J and CNBC covered it. Imagine the Jolt to the already fragile marketplace!
Al Clark
HomeActions Client Realtionship Tools
Love the last two lines on your blog. It’s not depressing – it’s “real”. And you have to be, and think “real” in order to make good decisions. Keep up the good work.
I agree with you. We will have gridlock in Washington that will be an improvement over the disater of the last two years. Improvement will come after the next national election cycle when we rid ourselves of most of the remaining “progressive” thinkers that have pushed us into the present situation.
This short video at this link explains a lot about why there are no jobs. It’s a very clever explanation of how capitalism works to overcome any obstacles: http://wimp.com/crisescapitalism/
Jobs…jobs…jobs
who..what… when… where…how
Until we solve this problem ..nothing will change
The problem is….who moved my cheese….jobs will have to be different….unknown to all us the “buggywhip” economy (ie, jobs) has been slowly and invisibly disappearing….now we know….this is not your Dad`s America
AMERICA HAS TO REVENT HERSELF….the jobs we have known of the last 50-75 years no longer exist…..we need another Edison/Henry Ford