Today, the National Association of Realtors reported truly ugly sales of pre-owned homes. The number plunged by 27% to a seasonally adjusted annual rate of 3.83 million, the lowest level since they came up with the first tally over ten years ago. What did they expect? A recovery?
Clearly, the expiration of the home-buyer tax credit took its toll on the resulting figure. But the number also points to high uncertainty. With falling interest rates and banks unwilling to lend, there is really nowhere to go for many buyers, and no place to turn for the sellers. It is a classic catch-22 situation.
There is no way this monumental mess can get resolved all by itself. Ben Bernanke won’t allow interest rates to go up, that is if he can help it, for fear it would strangle the recovery. Banks are in no hurry to lend, but want to off-load their non-performing assets aka REOs. Fannie and Freddie are both clearly overwhelmed and fit for another bailout. Buyers willing to buy either cannot come up with a sizable enough down payment to live up to out-of-the-ballpark expectations of some tight-fisted bankers or they cannot produce full documentation. The Frank-Dodd act could be just the last nail to the coffin of the housing market.
In the meantime, developers sit on unsold inventory of new homes; sellers despair. Not that the jobs market will provide any relief in the near future. It’s the economy, stupid! Again.
The assumption that prices will go down at most another 5% this year and then miraculously rebound is, given the current context, wishful thinking. Absent some sensible, coordinated policy response from Washington this mess could drag out for another few years.
This certainly calls for creativity in real estate transactions more than ever. It is a unique opportunity to build wealth in real estate.