Are we finally starting to recover from the housing crisis? Everyone seems to have an opinion, but the facts present a mixed picture.
All Real Estate Is Local
"You've undoubtedly heard that 'all real estate is local,' and that's never been more true," says first-time homebuyer specialist and California real estate broker Greg Cook.
The Miami real estate market is a great example of this aphorism.
"When housing inventory hits six months or less, we have a healthy market. In Miami, we are at as low as two months inventory in some neighborhoods," says Sep Niakan, managing broker of HB Roswell Realty in Miami Beach, Fla. "That is not a recovering market, that is a booming one," he says.
The Miami market is an outlier, but real estate professionals are seeing positive signs in other markets as well.
"In Manhattan, the number of sales have slipped slightly due to the downgrade of U.S. debt, the European debt crisis and Wall Street bonus concerns," says Christopher A. Potter, vice president of Apple Mortgage Corp. in New York City. Prices are stable and inventory is slightly down compared to the previous quarter. "This is all positive news for potential home buyers as the real-estate market remains stable in Manhattan," he says.
Sales Associate Laura D. Murray with Weichert Realtors in Silver Spring, M.D. says that every house her clients are interested in is receiving multiple offers. "Any house that is appropriately priced is getting multiple offers because the inventory is so low," she says.
National Housing Market Data
Nationwide, the housing supply is at 6.4 months. This means that it would take 6.4 months for all the homes currently on the market to sell at current sales rates. A five to six month supply indicates a healthy market, according to market intelligence firm Hanley Wood.
A January Wall Street Journal article by Nick Timiraos reported that while lower inventory numbers seem like a positive sign, they might not tell the whole story. Homeowners who have held back on selling and foreclosures that have yet to hit the market could mean that we haven't yet entered a housing market recovery.
The National Association of Realtors (NAR), the real estate industry's largest trade association, tracks home sales and inventory data. In its most recent news release, the NAR's chief economist, Lawrence Yun, said that underlying market factors have improved compared to one year ago. Sales increased in the Midwest and the South, but declined in the Northeast and the West. He thinks there is pent-up demand for housing and expects to see a rise in demand for homes this year.
The NAR reports that home sales were up in January, but declined in February. Foreclosures and short sales still comprise a third of home sales and about a third of contracts are falling through, often due to problems securing a mortgage. NAR President Moe Veissi stated in the press release that home prices appear to be stabilizing in many parts of the country. Despite these negatives, another positive sign is the increase in sales in investment and vacation properties. The NAR reports that in 2011, these sales reached their highest level since 2005. Last year, investment home sales rose 64.5% compared to 2010 and vacation home sales rose 7%. Combined, these two types of sales accounted for 38% of all transactions. While investment home prices were up 6.4% compared to 2010, vacation home prices were down 19.1%. About 40% of homes in the United States are either investment or vacation properties.
Real People and the Economy
Meanwhile, the results of a recent FICO survey predicted that 2012 will see a high volume of strategic defaults, where homeowners invite foreclosure because the value of their homes has fallen so far below the amount of money they borrowed to purchase it. The same survey expects that lenders will continue to deny credit to interested buyers.
Jéneen R. Perkins, an accountant and consultant for Éclat Enterprises in Milwaukee, says that the housing market is not turning around yet because it's tied to a number of other markets that are still down. She points out that people cannot buy houses if they are not employed and if credit remains tight. She says securing affordable financing is the No. 1 issue she sees.
Cook sees a similar picture.
"The real estate market has the potential to turn around, but lack of consumer confidence and a stagnant jobs market have us basically treading water," he says. "It's easy to spot trends when comparing month over month or year over year numbers, but those are just snapshots." He says consumers shouldn't speculate based on short-term price changes.
The Bottom Line
How should potential buyers interpret the current information about the housing market?
"A potential home buyer needs to be certain that home ownership is a part of his or her overall life plan," says Perkins. "One should not buy a home because of price or low interest rates."