Perhaps the most common question I get is, "Where is the real estate market headed?" Or, "Have we hit the bottom yet?" Since I don't have a crystal ball, the simple answer is I don't know. However, I have been the real estate business for over 25 years and analyze the market on a daily basis as well as follow national and world events. This country has been through many recessions, depressions and panics only to quickly bounce back to be even better. Under normal circumstances I, being the natural optimist, would say the future is bright, things will turn around. However, there is something different about this economic challenge.
We have a political leadership that is doing the exact opposite of what should be done. It is a command and control regime at virtually every level of government. Taxes are being raised and new taxes are being proposed including a VAT (value added tax), cap and trade, national health care. Government spending is off the charts artificially propping up automakers, banks, and financial institutions. The Fed is printing money at an unprecidented pace. We are having a difficult time selling our debt. Oil producing countries along with China and Japan have been secretly looking for ways to drop the US dollar as a reserve currency.
So what does all of that have to do with our local real estate market? We will soon hit a wall where the world will stop buying our treasuries. In order to coax them into buying our debt, interest rates will have to be raised. Not only will it destroy banks, it will have a direct impact on effective purchasing power for everything including housing.
Unemployment nationally and statewide has been trending upward for more than a year according to the Department of Labor statistics. Also, the average hours worked per week is declining. People are either out of work, under employed, or afraid they may lose their job. People don't buy houses unless they feel secure in their job. This will impact housing.
Foreclosures and bankruptcies are still growing. I have performed more appraisals for bankruptcy cases this year than I have in all of my previous 23 years combined as appraiser. The inventory of housing is relatively high, but the percentage of distress sales, especially in certain market areas is placing a downward pressure on values.
What about BRAC? Oh yes, the great savior of the local market. I'll believe it when I see it. To be sure, there have been many moving into the area. Some are buying and some are renting. This has certainly mitigated against what could have been an even worse market. The problem is that the inventory is so high, even hundreds of new workers moving into the area are hardly making a dent.
What about the $8,000 first time homebuyer tax credit? Any economist worth his salt would say it merely serves to artificially prop up prices. It can't continue ad infinitum. Eventually, the tax credit will cease to exist and the market price will fall to its natural equilibrium point. The folks who bought with the tax credit could see their home values fall and create a new crop of people upside down on their mortgages.
So to answer the questions, "Where is the residential real estate market headed?"and "Have we hit bottom?", I'll just say this: When our rulers decide to cut taxes, spending, borrowing, and printing money, things will get better. When they set the American people free to produce, create, and, yes, make an honest profit, the real estate market will rebound. In the meantime, you may want to think about buying some gold.