Socrates and Voltaire were both concerned with, as a foundation of any discussion, the definition of terms. While I, and every REALTOR® I know, is enjoying the current pace of housing sales, the idea of a “recovery in housing” is not at the top of most REALTORS® consciousness. Most every REALTOR® I know is running as fast as they can to respond to the desires of their clients to buy or sell a house. But the housing pundits and Housing Big Box CEO’s are jumping on the bandwagon of recovery. For the pundits, the 4 year refrain of “housing sucks” has become wearying, so a new song is good for them, and the wounded CEO’s are trying to dump debt with stock offerings and accounting manipulation. Good for them. but, just how do we define the term “recovery”.
The dictionary offers three useful ideas: (1) restoration to a former condition, and (2) the regaining of something lost, and (3) a return to a normal condition.
While we may be on the cusp of recovery, we have a ways to go before we can declare that we have recovered. And, with regard to a housing recovery, what are we really talking about? The Federal Reserve Bank recently reported that Americans lost upwards of 40% of their net worth in the recent recession, with much of that loss reflected in a decline in home value. BUT, that is an average loss, is not true for every family everywhere, and much is less so in Metro Denver. So, to become restored, we need to increase the average sales price to a former condition. The peak of the average in Metro Denver was about $335,000, so the May average of $308,000 is still $27,000 shy of that mark. We won’t get to that level in 2012, but, baring unexpected setbacks, the Metro Denver market may exceed the previous peak in 2013, and almost certainly by 2014. That would certainly constitute a “former condition”, at least as far as the condition of average price. But for many individual homeowners, their “former condition” may have been $280,000, which explains why some owners are in a position to sell.
For many people, regaining something lost may take a few years.”Restoration to a former condition” means consumers recovering their financial footing, and becoming homeowners again, hopefully somewhat wiser about their personal finances. The “funny money” financing that fueled the abnormal housing market of the last decades middle years is gone, with bonuses paid and credit destroyed. The mortgage lending pendulum will swing slowly toward “normal”, assuming the regulators get out of the way. But consider that the former condition will never be restored. New rules and regulations will keep some consumers forever out of home ownership, new materials and methods of housing construction are already showing a trend toward smaller, more efficient houses. In short, we have to “go back to the future”, because what we did before won’t work anymore.
And what is “normal”. The ever faithful dictionary states: the average or mean, or standard. So, in housing, that would mean a balanced market, where the number of buyers roughly equaled the number of sellers. That is certainly not the feel good definition, which is really a few more buyers than sellers, forcing prices to rise. A normal housing market only exists for a fleeting moment, because the dynamics affecting housing are constantly changing. As a case in point, this blog has long maintained the position that housing is affected more by employment than any other factor. While everyone likes low interest rates, home buyers will pay higher interest rates if their employment seems secure. The current “hot” sales market in Metro Denver is occurring in spite of an 8%+ unemployment rate. Stand by and watch what happens if Metro Denver achieves 7% 0r even 6% unemployment. Many homes are being sold to investors who have figured this out, and stand to make a buck or two not too many years down the road.
The best factor of this current improvement in the housing market is the attitude of the buyers. Investors are buying because they believe their money will be safer in rental housing than their 401K’s. First timers are buying because they want to go “home”. And there is enough of an increase in marketable equity to allow some owners to sell, become buyers, and change their housing situation. The beginning of a housing recovery.
Most industry professionals are “cautiously optimistic” regarding a housing recovery, but, if enough Americans continue to enjoy a personal recovery, then we will be in a recovery. For the moment, those same industry professionals are rejoicing at a market that is a whole lot better than the recent past.