Residential Real Estate Special Report
The slowing economy, and likely double dip, is triggering another down leg in home prices. The latest Case-Shiller data show that housing is once again in free fall. Anyone who believes that housing is on the rebound, and that now is the time to buy, should take a very hard look at the real numbers.There are 140 million personal residences in the U.S. of which 19 million homes are either directly or indirectly for sale.
How many sellers are out there? According to a survey by Zillow.com, a real estate appraisal website, 5 million homeowners plan to sell on any improvement in prices. Add 4 million existing homes now on the market, 1 million new homes available by the home builders and 1 million bank owned properties. Another 8 million mortgage owners are late on their payments and are on the verge of foreclosure, bringing the total overhang to 19 million homes.
Of course, there ARE buyers. But, there are 35 million who are underwater on their mortgages and aren’t buying homes anytime soon, nor are the 30-35 million unemployed and underemployed. That knocks out 50% of the potential buyers!
Now let’s add demographics, one of my beloved topics and favorite economic predictor, into the fray. As I discuss in Facing Goliath – How to Triumph in the Dangerous Market Ahead, there are 80 million baby boomers retiring at the rate of 10,000 a day. Assuming that they downsize over time from an average 2,500 sq. ft. home to a 1,000 sq. ft. condo, and eventually to a 100 sq. ft. assisted living facility, the total shrinkage in demand is 4.3 billion sq. per year, or 1.7 million average sized homes. That amounts to shrinkage of aggregate demand for a city the size of San Francisco, each and every year for at least five more years!
Unfortunately there are only 65 million Generation X’ers, so they can’t possibly make up the slack. Plus, most of them have much fewer assets and lower standards of living than their parents. Let’s not forget that the first time home buyer tax credit is history. With Obama-Care and other taxes going up, real property will lose even more allure. Katie bar the door if the discussion to eliminate the home mortgage interest deduction ever becomes a reality.
When you look at the reality, and disregard the ever optimistic board of realtors, there is a massive structural imbalance in residential real estate that will take at least five, or more like 10 years, to work through. Some feel that we will see a replay of the same 26 year period during the depression, from 1929 to 1955 when prices stayed flat. Given these headwinds, I’d say home price appreciation is not likely with another dip in home prices on the way.
Real estate, as with any investment, is difficult to time. Managing money, especially your own, is a daunting task… and that’s where we can help. Our “Invest for need, not for greed™” approach combined with our hands-on proprietary Top-Down Tactical™ investment management strategy can help you manage risk and deliver returns. If you would like to learn more and/or get a free second opinion on your portfolio, simply reply to this email, click our Appointment Request Form or call for a no-cost no-obligation consultation today at (916) 925-8900.