Hitting the bottom
We are not economists although we closely monitor and study the national real estate economy for hours every day, pouring over statistics and piecing together a picture of health (or lack thereof) in the real estate sector. We report on dozens of metrics that give us a pulse on housing, and we’ve been reporting for a long time that real estate has not quite hit the bottom… yet.
So that is where we are right now and most economists agree. But the problem with economists is that there is rarely a strong consensus about what the future of the economy is, and often the present and the future intersect, so we are all left to choose an economist’s theory that most closely matches what our reality is; there’s no other way. It’s like choosing a horse in a race- you can’t pick “all horses” and feel like a winner when one of them wins (or when one economist is right).
The economist we most closely follow and have mentioned for years is Dr. Mark Dotzour, Chief Economist at the Texas Real Estate Center. In 2008, we wrote, “National commercial developers considering projects in Texas often attend Dr. Dotzour’s forecast meetings before making a decision on their billion dollar deals, I kid you not. Even the most pessimistic, the most well educated, and the most experienced still look to Dr. Dotzour who seems to be the only one with a crystal ball.”
We noted he is “the model which all economists on the national and local levels should emulate. Dr. Dotzour has never been overly optimistic nor overly panicked and he has been right on the money for as long as I can recall as he forecasts locally and nationally (many of his speeches are available here as proof).”
Have we started recovering yet?
Dr. Dotzour said recently at the SIOR Conference, that there was no double dip, and that we haven’t even hit the bottom yet. We noted that “this conflicts with what many other economists are saying and honestly, it conflicts with what we have been saying. We’ve even shown you via chart where the double dip exists. But when Dr. Dotzour says these up and downs don’t account for the bottom yet, we are a bit afraid of what the bottom looks like.”
Dr. Dotzour said, ““The government sector has postponed right-sizing at enormous expense to the American taxpayers” and alludes to “unfathomable budget deficits” holding the economy back.
What is NAR’s position?
The National Association of Realtors takes a different stance and we are shocked given Yun’s typically conservative and realistic outlook unlike his predecessor. NAR’s Director of Quantitative Research, Jed Smith told a San Antonio newspaper this week, “The good news is we’re in a recovery. I have to tell you that because otherwise you wouldn’t know.”
We’re not economists, and he could be seeing something we’re not, but honestly, we could not disagree more strongly. Maybe we have hit bottom and Dr. Dotzour is wrong, but we most certainly are NOT in a recovery. Here is a short list of just a few of the many, many reasons that housing is not recovering yet. It could come soon, but we do not believe it will be in 2011 or maybe not even in 2012.
Reasons housing is NOT yet in a recovery period
Despite our finding Smith’s commentary to be either snide or condescending (it’s hard without voice inflections to tell) as he notes “otherwise you wouldn’t know” we are in a recovery unless he told you directly, we would like to point out reasons that we strongly disagree with his assessment of the real estate economy:
- Unemployment, unemployment, unemployment. We’ve been saying for years that without healthy employment, there cannot be healthy housing, so until the government stops patting themselves on the back and realize that unemployment is horrible and underemployment is worse, we won’t see a recovery in years. This alone points to a lack of recovery right now.
- The current foreclosure backlog could take decades to process. The robosigning scandal where banks used software rather than people to process foreclosures, leading to illegal foreclosures (on wrong addresses or illegally against soldiers, etc.) and ultimately to dozens of lawsuits against the banks plus state and federal agencies investigating and punishing banks for their misdeeds which has led to mortgage processor layoffs and a foreclosure freeze/slowing be it voluntary or involuntary by banks.
- Homeowners are not only struggling because of underemployment, unemployment and a general spike in living costs, their biggest investment (their home) has dropped nationally to the lowest values in nine years. Ouch. Home values is where economists point to our current double dip in the recession which is NOT synonymous with a recovery.
- The most current data (from NAR, nonetheless) notes that existing home sales have dropped almost 4% nationally in May alone and we’re now in a double digit drop from 2010.
- Pending home sales data from last month which shows the number of contracts signed has plummeted 30% since 2010, a dismal number at best. This does not show consumer confidence (which remains shaken at best) in housing. If no one is able to qualify for a loan and offers are down, make no mistake- that spells trouble, not recovery.
- New home construction is a disaster and is barely limping along. Although we just reported that new home sales dipped for yet another month in a row by 2.1%, we saw the silver lining in that sales were up 13.5% from 2010 (a year that was even worse than 2011 for builders). Lending is near impossible for small builders and a struggle for even the biggest builders leaving tight inventory which would seem to be a positive that buyers could feel compelled to buy because of the rare nature, but even builders are pessimistic about the rest of this year. Housing permits (a predictor of future building) nudged up a bit recently but overall have faceplanted and done even worse than economists expected. New construction is a tremendous drag on the housing economy.
- Supply and demand are off. Based on a comparison of housing preferences, America has too many big-lot housing and not enough small-lot and attached housing. Supply and demand are officially off. This could damage the suburbs with big lots even more substantially than the hit in high foreclosures, inventory gluts and the like.
- FHA premiums rose and FHA purchase applications TANKED. If we were in a recovery period and thinks were hunky dory, a premium increase wouldn’t threaten to agitate the market, it would make a small dent and move on, but in this case, FHA apps are lower this year than last.
- People are scared. The government is talking about mandating 20% down on all mortgage loans which some say will destroy the ability for most to buy (which NAR agrees with). Because this is unresolved, we remain in a state of limbo- at the current poor state of housing, the economy is struggling, but throw in this grenade and it could sink the whole ship. 20% down wouldn’t destroy a sector in recovery, but it would destroy a sector in decline that hasn’t quite hit bottom.
We could continue, but you get the point- WE ARE NOT IN A RECOVERY PERIOD in housing. It’s not all doom and gloom as this too shall pass, but we cannot agree with a NAR economist whose statements aren’t even in line with their Chief Economist’s recent statements.
We don’t need to be told we’re in a recovery, that simply comes across as cheerleading in a moment in history when we know that we need to brace for hitting bottom, not put on rosy glasses and hope for the best (which echoes of one NAR Economist of the past that has since been skewered for this very reason). Realtors are in for a tough 2011 and possibly 2012, but when a recovery is upon us, we will tell you, because we are hoping like crazy that it comes sooner than later- housing could really use a lifeline.