Real Estate Coming Back – Myth or Reality?
Every day we scour the leading financial papers in the world trying to determine what reality is. If you were to go by the daily write-ups commentators, they would have you believe that real estates values in this country have bottomed, and are now on the way up. The proof they would offer would be the dramatic increase in sales activity throughout the country. Let's set the record straight by looking at a few vital statistics that will inform the average individual as to what is really going on.
According to the national Association of Realtors they reported in August of 2009 that existing home sales rose in July for the fourth consecutive month. They were up 2.2% from June, the preceding month, and the numbers are adjusted for seasonal purposes. On the face of it, this seems pretty bullish, and that's precisely what they would have you believe, but not so fast. Let's get more in depth, and it become obvious, they are misleading everybody who has an interest in this subject, as they are biased to the bull side.
We looked at a survey which was sponsored by a real estate industry trade periodical called, “Inside Mortgage Finance”. Now this is what the pros read, and the numbers are remarkable different when looked at in detail. They were written in such a way as to inform the professional real estate player but mislead the amateur. The publication found that 36% which is more than a third of all sales involved what they called “non-distressed” properties.
So what does that mean? It means you have to reverse the numbers. If 36% of all real estate sales involve non-distressed properties, than 64% or almost two thirds of all real estate sales involve DISTRESSED PROPERTY SALES. Folks, this also means the vast majority of real estate sales taking place in this country is bottom fishing by ordinary people of properties that are in financial distress. This is not a bull market in real estate under any conditions that we can foresee.
There are more lies taking place. In a footnote to the article, we noted something else that was highly deceptive. Let's just focus on the non-distressed sales for a moment which made up 36% of all real estate sales according to the data. Non-distressed to us means just what it says, non-distressed, or voluntary sales. This is not the case however. The footnotes reveal that when dealing with the non-distressed properties, about 31% of them involved what they termed as “unforced or optional”.
This means that 69% of the so-called non-distressed property sales were “FORCED” for some reason which was not given. Now even the average guy can do math. If you put all the numbers together, it comes down to this. Ten percent, that's right, 10% of all real estate sales in this country for the last several months were what you and I would call the normal sales process, where a seller decides simply to sell his home. The rest were either the result of a foreclosure, banks taking losses, or a forced sale by the seller.
Real estate is still a disaster in this country, and we think it is a multi-year workout at best for it to get back on track. Now here is more information that you need to work with.
Vital Points – You Decide
- There is a first time credit allowed by the federal government that has helped to increase sales. It amounts several thousands of dollars, and will at some point disappear, so it is only a temporary stimulus, as it will expire on November 30.
- We also know that the number of homeowners who are in financial distress hit a brand new high in the second quarter of this year. It amounted to more than one out of every eight homeowners in America. They were either delinquent in their mortgage payments or in the foreclosure process, and this includes PRIME customers.
- What's happened is there has been a deceleration in the subprime mortgages going bad. In other words, the rate is decreasing. They are still going bad, but they are slowing down in numbers. At the same time, default rates are increasing among prime customers compounding the current problems we are facing. This is most probably due to people losing their jobs, and obvious declines in house prices which means people simply can not feel good about their homes at the moment.
- A little bit over 13% of the homes in this country are 30 days overdue on the mortgage or more.
- If you just look at prime loans, these are guys with credit scores approaching 800 and sometimes higher, 9% of the loans are over due, or in foreclosure. A number almost double a year ago, when it stood at 5.35%.
- Among the subprime set, the numbers are shocking. Almost 40% of the loans are behind or in foreclosure. A year ago, it was 30%.
- Look at it another way. If we look at all foreclosure sales, prime loans are 58% of that number. This is up from 44% less than 12 months ago. Subprime mortgage defaults are 33% of all defaults. This is down from 49% only 12 months ago. What you could say is that one out of every three defaults is coming from the prime market which nobody expected. This means the prime market is getting ravaged right now.
- The financial panic of 2008 triggered the subprime mortgage crisis. What we are seeing now is the recession and the loss of jobs coupled with housing price declines triggering the normal recessionary defaults that must take place.
- Four states in America account for approximately half of all defaults. The real number is 44%, and the states are Arizona, Florida, California and Nevada. Almost 23% of all the mortgages in Florida are now past due. That amounts to one out of every four homes you drive past.
- Think about this, if you live in Nevada, two out of every three homes are in negative equity. In Arizona its 50% or one out of every two borrowers. Nationally more than one third of all homes are negative equity.
- When we study the overall numbers, homeowner sales this past July were at the same levels as they were a year ago in July 08, which sound pretty good. As you can see, when you look at the details, it's not a pretty picture. We don't see this changing over the next 12 months.
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Goodbye and good luck