Housing market may be worse than stats reveal

Implications: The pressure is intense for home owners, lenders, home builders and other investors to maintain housing values. Companies who provide financial and other services such as real estate brokers, appraisers and the like are dependent for their income on a steady to rising market. The home buyer on the other hand evidences refusal in markets where affordability isn’t present and high ratio financing isn’t available by turning to alternatives other than home ownership for gratification. Since there is less transaction activity at those times, home owners and the industry do their best to satisfy buyer emotions about affordability and provide the funds to structure transactions that work.

Analysis:

The problem here is that black and white turn into gray real quick when the appraisal is ordered and later when the deed is recorded to update the public record. Offsets in the transaction to the seller’s account may include improvements to the property, allowances for building materials and labor, financing costs, items which are essentially rebates of one kind or another and all sorts of other charges. Your imagination may be the limit. Gray, gray and grayer turning into charcoal are the temptations. Usually the shade is lighter in the early parts of a rising market and charcoal is the accent when times get tougher. The charcoal of this market is apparently straining the imagination though.

To get back toward white in this market, either buyer wages must rise or prices must fall. The earnings of the elite are still rising, but I’ve heard that the leverage on multi-million dollar home financing in some cases now is pretty high. Traditionally, this market has seen conservative loan to value ratios until the market gets toward overcooked right before the fall. Middle income budgets remain strained at this time but wages here are more or less stagnant unless offshore competition in a particular industry is absent. I see bottom end wages particularly in the customer service areas rising, but these recent increases from a low base are not enough to strengthen the home buying pool significantly.

So it’s the same old tune for now that we’ve been playing for the past almost 24 months or so. Prices have got to fall significantly if we want to market the current re-sale/spec inventory and successfully build for a homeowner need. The indicators are present that the price reduction process is well underway and we’re just not reporting the accurate results. It appears the near future results will bring even more of the same.