Is Real Estate Heading For A Double-Dip Recession?
Boy oh boy, just when I thought real estate was starting to move up a little the real estate gurus on TV and in print media are hedging their bets and saying we should all be prepared for another recession in real estate -- or at least a continuation of the one we haven't gotten out of yet.
Frankly, I wasn't expecting the real estate market to bounce back in a V-shaped recovery like some were predicting two years ago. But I did not think we would have back-to-back recessions in the same industry.
The gurus are looking at a couple of things that they say indicate more trouble ahead for real estate across the country. Here's what on lady reported in a "round-up" story on cable TV this past week ...
First, housing starts fell 10% in May as compared to April. They say that means real estate is headed downward. They also point to a drop in orders for lumber by builders. That means construction companies are not getting contracts for new homes. Blame all this on the end of the tax incentive program, say the gurus.
Second, employment reports in April were disappointing and included a lot of part-time jobs for census-takers instead of regular jobs in private industry. If folks don't have jobs, they aren't going to buy houses. I think that's a fair observation, although not particularly astute.
Third, mortgage rates are flat. The woman on TV said that since mortgage rates are not going up anytime soon, there is no financial incentive for people to hurry out and buy a home now. According to that kind of logic, I guess we should beg the bankers to take more of our money so that the real estate market can be stimulated -- can you believe that kind of logic?
Finally, the euro versus the dollar thing is an important matter. Since the euro is falling against the dollar, Europeans are not coming to the United States to buy real estate since it appears so expensive to them. Okay, maybe that's true. But how big a percentage of gross real estate sales are European sales anyway?
Naturally, I've got some comments on these points.
First, I think housing starts and home sales in general fell in May because so many people took advantage of the tax stimulus in April. At any given time in this country, there are a finite number of people who want to buy or build a new home. Once they've taken advantage of the incentive and contracted for their new home, what can you expect but a reduction in contracts during the coming month? Now that the incentive has been removed and things are back to "normal", there's bound to be a reduction in home buying activity. We simply have to wait awhile to let new buyers enter the market in coming weeks or months. To me, this is just common sense and any first year marketing student understands it. But perhaps real estate gurus and journalists don't get it.
Here's something else about this drop in real estate sales in the past month. I think this oil leak in the Gulf of Mexico has cast a shadow over the entire Gulf region and put people who live in the area in a big blue funk. I think they are worried about the effects of the on-going spill on lifestyle, property values and envoronmental quality. I think those worries have an adverse effect on real estate sales. To me, it's just another reason to thank BP.
Second, unemployment is a bona fide issue for real estate. This country simply must generate more jobs in the private sector. So, while unemployment is an indicator of things, the real problem is the economy in general which needs a shot in the arm so that more Americans have good jobs. In fact, we could go back to the first matter and say that the reason housing starts and contracts fell in May had a lot to do with the overall economy, not the tax incentive. Just look at what happened to the stock market in May! It certainly took the incentive away from buyers of many items, not just real estate.
Third, I think raising mortgage rates as a way to stimulate immediate home sales is just plain dumb. If you want people to buy homes during a period of economic crisis, you have to make homes more affordable, not less. Raising the monthly mortgage costs is a dis-incentive to home sales, not a way to speed up purchasing.
Fourth, this thing about the euro makes sense to me even though I don't really understand why foreign exchange rates move up and down. I think a lot of it these days has to do with the amount of sovereign debt the European countries are holding, and the amount of confidence other countries have in their ability to make their bond payments and pay other debt instruments. But I do understand how it can affect home sales by Europeans in the U.S. and believe it could have a negative impact, so score one for the lady guru on this issue.
So, I think some of these fears of a second recession or a prolonged current recession are legitimate, but some of these guru comments are not legit in my humble opinion. It all just proves to me that many journalists reporting on real estate have never actually SOLD real estate for a living and don't even understand the basics of marketing or economics. I think that to them, real estate reports are just another "beat" that they have to file stories on -- like the "police beat" or the "sports report" or dozens of others.
Hey, if you don't have to understand anything about economics or market conditions or business, maybe I should get a job reporting on real estate!
Happy selling!
-30-
Frankly, I wasn't expecting the real estate market to bounce back in a V-shaped recovery like some were predicting two years ago. But I did not think we would have back-to-back recessions in the same industry.
The gurus are looking at a couple of things that they say indicate more trouble ahead for real estate across the country. Here's what on lady reported in a "round-up" story on cable TV this past week ...
First, housing starts fell 10% in May as compared to April. They say that means real estate is headed downward. They also point to a drop in orders for lumber by builders. That means construction companies are not getting contracts for new homes. Blame all this on the end of the tax incentive program, say the gurus.
Second, employment reports in April were disappointing and included a lot of part-time jobs for census-takers instead of regular jobs in private industry. If folks don't have jobs, they aren't going to buy houses. I think that's a fair observation, although not particularly astute.
Third, mortgage rates are flat. The woman on TV said that since mortgage rates are not going up anytime soon, there is no financial incentive for people to hurry out and buy a home now. According to that kind of logic, I guess we should beg the bankers to take more of our money so that the real estate market can be stimulated -- can you believe that kind of logic?
Finally, the euro versus the dollar thing is an important matter. Since the euro is falling against the dollar, Europeans are not coming to the United States to buy real estate since it appears so expensive to them. Okay, maybe that's true. But how big a percentage of gross real estate sales are European sales anyway?
Naturally, I've got some comments on these points.
First, I think housing starts and home sales in general fell in May because so many people took advantage of the tax stimulus in April. At any given time in this country, there are a finite number of people who want to buy or build a new home. Once they've taken advantage of the incentive and contracted for their new home, what can you expect but a reduction in contracts during the coming month? Now that the incentive has been removed and things are back to "normal", there's bound to be a reduction in home buying activity. We simply have to wait awhile to let new buyers enter the market in coming weeks or months. To me, this is just common sense and any first year marketing student understands it. But perhaps real estate gurus and journalists don't get it.
Here's something else about this drop in real estate sales in the past month. I think this oil leak in the Gulf of Mexico has cast a shadow over the entire Gulf region and put people who live in the area in a big blue funk. I think they are worried about the effects of the on-going spill on lifestyle, property values and envoronmental quality. I think those worries have an adverse effect on real estate sales. To me, it's just another reason to thank BP.
Second, unemployment is a bona fide issue for real estate. This country simply must generate more jobs in the private sector. So, while unemployment is an indicator of things, the real problem is the economy in general which needs a shot in the arm so that more Americans have good jobs. In fact, we could go back to the first matter and say that the reason housing starts and contracts fell in May had a lot to do with the overall economy, not the tax incentive. Just look at what happened to the stock market in May! It certainly took the incentive away from buyers of many items, not just real estate.
Third, I think raising mortgage rates as a way to stimulate immediate home sales is just plain dumb. If you want people to buy homes during a period of economic crisis, you have to make homes more affordable, not less. Raising the monthly mortgage costs is a dis-incentive to home sales, not a way to speed up purchasing.
Fourth, this thing about the euro makes sense to me even though I don't really understand why foreign exchange rates move up and down. I think a lot of it these days has to do with the amount of sovereign debt the European countries are holding, and the amount of confidence other countries have in their ability to make their bond payments and pay other debt instruments. But I do understand how it can affect home sales by Europeans in the U.S. and believe it could have a negative impact, so score one for the lady guru on this issue.
So, I think some of these fears of a second recession or a prolonged current recession are legitimate, but some of these guru comments are not legit in my humble opinion. It all just proves to me that many journalists reporting on real estate have never actually SOLD real estate for a living and don't even understand the basics of marketing or economics. I think that to them, real estate reports are just another "beat" that they have to file stories on -- like the "police beat" or the "sports report" or dozens of others.
Hey, if you don't have to understand anything about economics or market conditions or business, maybe I should get a job reporting on real estate!
Happy selling!
-30-
posted by Terry Ward at 6:30 AM
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