Wednesday, June 10, 2009

No Housing Market Recovery Coming Before 2012 or Even Later

The mainstream media is already hinting that the worst of the U.S. housing market's troubles are behind us and recovery is just around the corner.

Yeah, right. This is the same mainstream media that didn't see the U.S. recession or its housing problems coming in 2004....2005....2006....2007....

There will be no U.S. housing market recovery until at least 2012 or even beyond. The fundamentals of the market are poor and still deteriorating and there is NO catalyst in sight that will lift housing prices or rents higher for the next few years.

Face facts, people.

Real estate values are a reflection of national income. The more people earn, the more they can buy real estate. A simple proposition. So how do you expect an economy losing 350,000 jobs a month to show income strength? 1.6 million jobs, that is 1,600,000 jobs, have been lost since Obama became President. SIX MILLION LOST JOBS since December 2007. Think about the effect this has not only on national income but debt service and fiscal spending on welfare and unemployment programs.

The overhang on housing inventory is so massive it cannot be counted. Bank REOs are crushing their balance sheets. But the biggest hidden measure of how much excess housing there really is out there is the simple fact that many homeowners just aren't listing their homes right now for sale. Why sell in a down market? Rent them out instead and eat the negative instead. The moment prices start to rise, whenever that is, you will have a flood of new listings to choose from which will depress prices for years to come. Just like there is pent of demand, there is pent of supply too.

You can't have a recovery in the residential housing market without a recovery in its bigger brother, the U.S. commercial real estate market. Defaults are still rising there and will continue through at least 2013.

I could go on and on but I won't since I have better things to do. The mainstream media will focus on housing sales, claiming they are rising, and will break out the champagne and celebrate the end of the housing recession . Great news, but so what? Measuring sales volume out its context is meaningless. Sales at what cost? What profit margin for the seller? I could sell a huge number of BMWs at $500 each but is this a great business model? The point is to make money selling things and not sell them at losing prices.

Ask General Motors about this business model. They had lots of sales, TENS OF BILLIONS OF DOLLARS OF THEM EVERY YEAR, making GM the #1 car seller in the world, and the company did not make a profit since 2004. Understand why they filed for bankruptcy? They sold lots of cars---and lost money on every sale.

The mainstream media will tout the end of the recession years before it ends, much like they failed to recognize the recession years before it arrived. Industry cheerleaders will concentrate on the good news, of which there will be some, while ignoring the bad news, which is plentiful and often more significant. And of course the get-rich-quick real estate guru frauds will be pushing their "Make a Million" home study courses and seminars no matter what the market is, always claiming it is the best time to invest in real estate in the last fifty or five thousand years no matter what the fundamentals of the market actually are.

Take a look around. Read the actual numbers, not the media reporting on them. Talk to people. Get real. This economic recovery hasn't even been born yet, let alone learned how to walk.

Robert J. Abalos, Esq.