A Tip-of-the-Hat To James Thorner

Did you read James Thorner's column, (Un)Real Estate, in the St. Petersburg Times for Friday, March 19th?

If you have an interest in Tampa Bay real estate but didn't read Thorner's words, go buy a copy of the paper. Or borrow a copy of the paper. Or have somebody send you a copy of his story. Or go to the website.

No matter how you do it, get that column and read it. Study it, in fact.

Finally, somebody is "telling it like it is".

Thorner has correctly pointed out that the so-called real estate recovery is on shaky ground around Tampa Bay. He comes to this conclusion based on some darn convincing evidence from three sources: 1. Florida real estate agents have reported an 11 percent price decline in Tampa Bay from December to January; 2. The S&P Case-Shiller Home Price Index reported a drop in prices of 11 percent from December '08 to December '09 around here; and 3. Discouraging reports from the Greater Tampa Association of Realtors about recent sales.

He could easily have added median price declines from the Pinellas Realtor Organization as a fourth source of discouraging news for home sellers.

Like you, I already knew that prices were continuing to fall in this neck of the woods. Ask any real estate agent and he or she will quickly point out that despite an increase in the number of properties sold recently, the prices for those properties have continued to decline since peaking in 2006. Sure, a few isolated neighborhoods have staged modest price increases lately and the rate of decline has been reduced in recent months, but for the most part the area is still looking eyeball-to-eyeball with declining property values.

What I like about Thorner's story is that he correctly tells us why this price decline is likely to continue, to wit:

• Foreclosures and mortgage defaults: Thorner points out that another bunch of Alt-A Loans will likely start defaulting in greater numbers this year. Alt-A's are mortgages for moderately risky borrowers and rank somewhere between subprime and prime. Thousands of these types of adjustable rate mortgages are scheduled to reset this year and it is expected that many of these mortgages will eventually go into bank foreclosure. REO properties (homes owned by the bank) generally sell for very large discounts and tend to drive down the prices of other properties.

• End of government subsidies: The home buyer tax credit programs will end in April and June. These programs help to support prices. When they end, it is likely that prices will be lower without the government's supportive program.

• Rising Mortgage Rates: The reason mortgage rates are so low now is because the Federal Reserve has been propping them up. Those props are being withdrawn pretty soon, so it is likely that mortgage interest rates will rise. I hear on the grapevine that mortgage rates will likely jump a full point, from 5 to about 6 percent or even a bit higher for a thirty year fixed loan. Thorner reported the same thing in his column. We'll have to wait and see how high they go. But higher mortgage rates mean higher monthly payments, and that means buyers will have to purchase their homes for less money or purchase less expensive properties. No matter what, it's not a good situation for a real estate recovery.

• Record Low Housing Starts: 2009 was a record low year in housing starts for Tampa Bay builders. They have predicted that 2010 will probably be worse. You would think that fewer new homes means less competition for those needing to sell existing homes. You would think that such a circumstance would help to improve the prices for existing homes. Ahhhh ... but you ignore the employment problems.

• Mind-Boggling Unemployment: Thorner reports that Tampa Bay unemployment reached 13.1 percent in January. In Pasco County, it's darn near 15 percent. With fewer jobs, there will be fewer homes sold. Simple as that.

So, it seems that the deck might continue to be stacked against a meaningful real estate recovery for the foreseeable future. For sellers, it doesn't really look too promising unless you can sell for a low price. For long term buyers, I think you should act now before the mortgage rates take a jump and while you still might be able to get in on the government subsidies if you act fast. For "flippers", well, I think I'd find another line of gainful employment.

Thanks to James Thorner for a very informative article that pretty well summarizes the whole darn situation.

Happy selling!

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