6 May 2009 - 15:36“It’s Fundamental”-This Week in Real Estate Market Analysis

The most compelling contemporary question I hear is “are we at the bottom of the market”? There is a variety of opinion about this; some driven by a “positive attitude” because we need some good news, some which are darker and perhaps more pragmatic responses. I am an admirer of Lou Dobbs of CNN, he is by in large a practical thinker strong on basic rights and a keen observer not afraid to give his opinion. He has been predicting the economy (including housing) will begin a comeback before the end of the year. He criticizes both Obama and Bush for negative messages and offering little good news. The interwoven problems and solutions to the total economic health picture are beyond most of us but clearly there are key indicators in my bailiwick that give me a cautious view of when and how there will be a substantial recovery.

First, any recovery however that is measured, will not be uniform and across the board at the same time. Second, prices (not values) will not “return to their peak” anytime soon given that the peak was investor driven and not user driven. In addition to the hopefully soon to be flowing credit availability there is a single troubling wild card that cuts across every region and every property type. It’s fundamental that jobs are the key to all of the other systems. The alarming rise in unemployment will not change overnight and in spite of assurances to the contrary may not respond positively to stimulus attempts in the near term. Think about it, jobs create income which evolves into disposable income. Without adequate ability to repay from income there can be no housing mortgages, retail space becomes vacant (save for necessities) and office space exhibits shrinking occupancy.

I tend to agree with St. Pete Times columnist James Thorner in his May 1st column, “Rah-rah housing talk is wishful”. He provides an estimate that there are 35,000 unsold homes which for some period of time will be fed by further foreclosures. We in the Tampa Bay area and most of coastal Florida have been dependent upon in-migration of retirees and relocation of families coming primarily from the Midwest and Northeast. If that migration pattern is to continue (and there are signs that is dramatically changing) those folks need to sell their homes “up north” first. Almost every day the optimists (and some with rose colored glasses) point to the increase in home sales which has closely followed the slow to change price declines. It appears that there are certainly bargains, especially if you intend to live in what you purchase, but once again there are pockets of equity rich investors counting on the market being at or near the bottom in prices and are preparing for a renewal of flipping. However, once again the fundamental lack of credit and mortgages for many precludes fueling the cycle and at the end of the day it’s still about jobs, especially if you don’t have one!