The State of the Markets – Will Housing Slide Again?
This post first appeared in the June edition of: Cirios Trends Special Edition: Mid-Year Review – Will Housing Slide Again?
According to Gallup’s annual survey on home buying attitudes, more than 75% of Americans believe the housing market has bottomed. Talk about a huge red flag.
Humans are emotional animals, and as a result you often see peek social mood coincide with market tops. When things seem like they just couldn’t get any better, they likely can’t. And conversely, just when you think the downward spiral will never end, it often does.
A cursory glance at the chart below shows just how tied consumer confidence has been to the stock market over the past five years. Indeed, this relationship has been remarkably close since they started keeping track of such things.
So here we are halfway through 2010 and confidence has been badly shaken. The steep drop in June reflects a growing concern that our tentative economic recovery is showing signs of petering out. Employment data is weakening, concerns over sovereign debt defaults persist and the housing market’s recovery is looking more transitory every day.
Supply levels are climbing, buyers in many markets seem to have disappeared after the expiration of the home buyer tax credit and fears of looming shadow inventory haunt the market. And with the job market sputtering, it’s little mystery why some of the most prominent economists, pundits and housing experts are asserting that the long-predicted double dip in housing is here.
This really isn’t news, and readers of this newsletter know that while we are constructive on certain real estate opportunities, we remain cautious. In March, we wrote that “A backlog of eager sellers is one of a host of factors that looms on the horizon.” Three months later, San Francisco inventory reached an all time high for mid-June.
The question above, “Will Housing Slide Again?” is a bit of a misnomer: Housing is sliding again. That is, the broad housing market has been slipping for months, as you will see by reading further in this month’s special Mid-Year Review. The important question, however, is what to do with this information.
For buyers, caution and patience remain the most important traits for making good decisions. For sellers, being realistic and eliminating hope from your selling decision will ensure that you don’t spend the next 12 months (or more) chasing the market down.
Broad declines in home prices are likely to drag down banking stocks, as large portfolios of housing-related assets will drop in kind.
The above conclusions are not new, nor have we just imparted some sort of unique wisdom; it’s really just common sense.
But housing’s imminent, indeed renewed, slide isn’t all bad. Real estate investors who jumped into the market late will be the first to be flushed back out as assumptions of continued appreciation prove wrong. This will reduce demand for distressed properties, and even though the resale environment is already more challenging than just months ago, wider spreads for investments means better opportunities for those who know where to look.
Cirios Real Estate, as it happens, knows exactly where to look.