Summer Real Estate: The Return

Summer reminds me of barbeques, baseball, and escaping the heat to go to the movies, as Hollywood usually brings on the sequels each summer.  Cars, Scream, Kung Fu Panda, The Hangover, and X-Men are among the ones already released this year. 

In some ways, the housing market is producing its own sequel.  This time last year we had the Homebuyer Tax Credit, office vacancy rates nearing 20%, and an incredible shadow inventory of short sales, REOs and foreclosures. 

This year’s housing sequel opened with similar themes.  Distressed properties haven’t gone anywhere, banks still seem reluctant to assist the real estate industry as much as they should, and government intervention in markets continues. 

So, let’s take a look at what to expect the rest of ’11.

Consumer spending continues to slow reflecting consumers’ worries about how high gas prices might go, among other things.  Income, however, seems to remain stable in the first half of the year according to reports, even when adjusted for inflation.  That is significant because income is the support for consumer spending.  It means that as fears subside, consumer spending should turn around.    

Now for housing.  While we all know that much healing is needed in housing and that conditions in the mortgage markets remain troublesome, we also have data that shows default rates on consumer and business loans have come down from their recession highs to a level consistent with a growing economy.  As households have paid down debt and reduced spending, they have improved their credit scores. That too supports future spending because with higher credit scores, consumers can borrow less expensively, should they choose to buy on credit. 

Unfortunately, the share of home mortgages in default or with payment at least 30-days overdue is more than three times higher than before the financial crisis.  It will likely be a long time before this returns to normal. 

Moreover, the defaults are continuing to drag on the housing sector.  While home sales bounced off what appears to be the low in the second half of last year, they’ve backtracked this year.  The expansion of the housing sector after a recession is usually a source of new jobs.  This time around, housing is not yet contributing to job growth.

While every sequel has a new twist, they’re rarely as powerful as the original.  Sequels to movies, like Scream, are less scary; we know what to expect, and this year will not be any scarier.  While we may be drawn to the suspense of living The Summer of Fear II in Housing this summer, I don’t believe we’re in for a scary ending; we have a good feeling of how it ends.  More of us are prepared.  More have a CDPE, SRF, or other designation to help, and more are with RE/MAX. 

Article by Chris Pflueger. Asst Regional Director, RE/MAX Florida Region