Back to the future

Before we wallow in all the negative news about the real estate market—wondering if it’s headed for another leg of the recession or a lasting deflationary grind—let’s pause and notice that, according to the Commerce Department, sales increased by a solid 24% from May to June in California. That still leaves us with a very weak level of sales, we must admit, but the turnaround may prove meaningful.

Meanwhile, the median selling price of a home in California, according to the California Association of Realtors?, gained 13.6% May to June, resulting in a median price of $311,950. (Again, that is a great distance from the price levels reached during the heat of the real estate boom, but it is surely a move in the right direction.) At the same time, the number of existing home sales in the state declined by 4.2%, a gentle slowing that should cause no concern.

This is most likely what it looks like when the mish-mash created by the $8,000 and $6,500 homebuyer tax credits finally ceases to be much of a factor in the markets. People aren’t going to refrain from entering a transaction because they’ll no longer get a check for $8,000 for buying something.

So we’re beginning to get an idea of the health of the real estate market, which is probably better than most analysts have been declaring it to be of late. To put it quite plainly, most of the American population is ready to get on with it, to buy what it needs to buy, to build up savings accounts and, crucially, to see jobs improve and increase at last. (Remember that, given the amount of cash currently held by most American companies, hiring could start in a serious way the moment people believe the time has come.)

Nonetheless, the economy’s attempts at breaking into a strong and sustainable recovery—and this would include real estate’s attempts—have three forces bearing down on them. First, the federal stimulus programs are expiring, and though this isn’t necessarily a bad thing, it’s fraught with unknowns. We don’t know what the end of many of these programs will mean, second, the debt problems in banks and nations abroad continue, though we have thus far avoided any major damage from them. This past week’s odd exercise with “stress tests” rattled the markets a bit—enough, at least, to support a relief rally when we learned that the results were pretty benign, containing no surprises. Keep in mind that the problems abroad bring a lot of investment into U.S. Treasuries, which in turn causes our interest rates to stay low. And they are likely to remain low for a few months, at the least.

Third, we have a weird group of Catch-22s to deal with. The Fed, for example, bought up over a trillion dollars in mortgages, keeping the home loan market alive. By and large, it worked—but now what? If the Fed attempts to sell off the securities, it inadvertently puts a cap on the value of those securities and that could slow the mortgage finance market greatly. If it holds on to those securities, the end result will surely be inflationary. Heads, you lose; tails…you lose.
How well the recovery proceeds depends in part on how wisely these odd puzzles are solved. Surely, there’s money to be made in what will happen. We just don’t know how yet.

As long as things hold, though, the real estate market is showing itself ready to advance. Doing so with such low rates as fuel is surely far better than what most analysts had forecast many months ago.

Reposted by: Eric M Burgess – Mr. Mortgage
Written by: Bill Fisher

Tags: Economy, Home Purchase, interest rate, market news, mr. mortgage

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