Here in the United States, we are now involved in the fifth consecutive annual loss in the real estate market. Prices, on a national average, fell another 4% during the fourth quarter of 2011, bringing median single-family home prices back to mid-2002 prices.
The most recent Standard and Poor’s/Case-Schiller Index showed that home prices in the top 20 US metropolitan areas fell 4% in January, more than the 1.3% drop last December (2011). Some of the cities that make up the Case-Schiller index performed better than the aggregate. Phoenix and Miami showed monthly gains. These findings were based on data from December 2011. That 0.2% increase in Miami and 0.8% in Phoenix could possibly reflect shoppers seeking sunshine and better weather. Atlanta, on the other hand, didn’t perform as well. Atlanta’s home count was down 1.8% from the prior month. Detroit, sadly, was down 3.8% due to a lackluster set of sales statistics.
In the past five months, home prices in the United States have fallen at an annualized rate of more than 6%, according to Dean Baker, director of the Center for Economic and Policy Research, a trend he says is especially concerning. . This prolonged decline in house prices continues to slow down the US economic recovery and limit the effectiveness of Federal Reserve policies, Ben Bernanke said last Friday (February 25, 2012). “The economic recovery has been disappointing in part because US housing markets remain unbalanced,” the Fed chair said in prepared remarks at the International Builders’ Show in Orlando, Florida. Bernanke’s speech came a day after five of the nation’s largest banks reached an agreement with 49 states to settle charges of abusive and negligent foreclosure practices dating back to 2008.
Foreclosures can and continue to devastate existing real estate markets. Bank-repossessed properties, called REOs, sell for 25-50% less than non-foreclosure properties. Every foreclosed property, regardless of whether it is in a foreclosure-free neighborhood, will affect the values of surrounding homes in CMAs (comparable market analyses) prepared by real estate agents or agencies in an attempt to market non-foreclosed homes within within a radius of six to ten miles. radio. For example, in a neighborhood like 32811 in Orlando, Fla., which had 275 homes with foreclosure filings in just one month last year, home prices have plummeted dramatically. A three-bedroom apartment in the area is currently listing for just under $40,000, for example. In 2005, that same home sold for $120,900, according to Orlando real estate agent Jerome Baker.
Certainly this crisis is not just a presidential “talking point” but also a very key political issue within everyday government circles. In a presentation to the Federal Reserve on February 28, 2012, Governor Elizabeth A. Duke stated, “A continued imbalance between supply and demand exacerbates these problems in the housing market. Over the past several years, real supply and potential for single-family homes and single-family homes for purchase has far exceeded effective demand, in part due to the large number of homes that have returned to the market after going through the foreclosure process, while therefore continuing to putting downward pressure on home prices. He went on to elaborate on the pieces of the puzzle by saying, “At the same time, a number of factors have been weighing on housing demand. Many households have been reluctant or unable to purchase homes due to concerns about their income, employment prospects, and future developments in house prices Strict mortgage lending conditions have also prevented many households from buying homes While some cut in credit standards was necessary and appropriate given the lax standards that prevailed before the crisis , current lending practices appear to be limiting or preventing lending even to creditworthy households.”
Warren Buffett recently gave an upbeat forecast for the housing market beyond 2012 in his annual letter to his shareholders, “Housing will come back, you can be sure of that.” His speculation was directed at the “long-term” housing market, which is purely driven by supply and demand. “Demographics and our market system will restore the necessary balance, probably before long… I think the experts will be surprised how much unemployment falls once that happens. Then they will wake up again to what has been true since 1776: America’s best days are yet to come,” Buffett said. However, Warren Buffett did not explain what “probably soon” meant in terms of a specific timeline. He openly admitted that the last time he made such a specific prediction it was when he said last year that “a housing recovery will probably start within a year or so” he turned out to be “absolutely wrong.”Ben Bernanke suggests formulating a plan that would convert foreclosed properties into single-family rentals, which could help offload some of the excess housing surplus in some markets.” With falling home prices and rising rents is, it might make sense in some markets to convert some of the foreclosed homes into rental properties,” he said. But it’s not a “silver bullet,” he added. For that matter…he’s not the superhero in a flowing red cape and the US real estate market is still “waiting for Superman”.
