We are seeing signs of a gradual economic recovery led in large part by the improvement in both the Real Estate and Housing Markets. With the steady flow on good news, it’s easy for someone selling their home to overlook the significant risks which could quickly impact the recovering housing prices.
- Hiring remains sluggish and the 7.6% unemployment rate is still 2.5% above where it was when the recession started back in 2007. – A sluggish recovery will impact housing prices.
- GDP growth for the first quarter came in at a sluggish 2.5%, well below the 3.2% forecast. Troubles in Europe, slower growth in China and emerging markets have already had an impact on the sale of U.S. products outside of the U.S. As our economy improves, the dollar is also rising in value against most currencies, causing U.S. goods to be more expensive overseas. – Flat GDP growth will impact housing prices.
- Consumer spending drives about two-thirds of the economic activity in the U.S. Most experts are very concerned about the impact rising taxes and government cutbacks will have on the economy starting later this year. The government’s fiscal tightening has already begun to hurt consumers who are once again borrowing more money. Sound familiar? – As consumer spending declines, economic recovery may take years and impact recovering housing prices.
- Stringent Mortgage Lending Standards are still squeezing out many traditional home buyers. -Fewer buyers mean lower housing prices.
- Investors – Sales have been driven in large part by investors purchasing properties to rent. – As bargain basement prices disappear, many investors will go away.
- Distressed Property Sales – Foreclosures and short sales will continue to have a serious impact on prices as banks liquidate risky mortgage assets. – Distressed property comparables will create problems with appraisals thwarting increasing sales prices.
- Pent Up Seller Demand – Many sellers have been waiting for prices to recover before they list their homes for sale. – The potential flood of new inventory on the market due to rebounding prices is likely to have an adverse impact on prices.
- Normal Housing appreciation levels run typically around 5% per year. – It’s unlikely the excessive appreciation in housing prices is sustainable.
- Uncertainty is still a major concern especially among large corporations and small businesses. With so much uncertainty about regulatory policies, monetary policies, foreign policy, and most importantly, U.S. fiscal policy, it is unlikely firms will hire more people or spend more.
- Deficit – The political gridlock surrounding the deficit spending and the debt ceiling debate are critical issues. – Developing a long-term solution to U.S. debt issues will take years.
What does all of this mean to potential home sellers? Keep in mind that the first quarter of 2013 followed the same script as the first quarters in 2010, 2011 and 2012. A strong recovery was forecasted, but in each case, the recovery ended up withering as the weather warmed. With all the problems, could a full recovery in housing prices still be years away???