June 25, 2009
The deep contraction in the economy and the housing market has created devastating consequences for homeowners and communities across the nation. Millions of responsible households that make their monthly payments and fulfill their obligations have seen their property values drop and are now unable to sell or refinance to lower rates. Meanwhile, millions of American workers have lost their jobs or had their incomes reduced and are struggling to make their monthly payments. As a result literally millions of families are expected to face foreclosure in the next several years. The crisis has now spread from entry-level homes to all areas of the marketplace including luxury homes in some of the priciest neighborhoods in America.
Thus far the Federal Government has stimulated our economy in many ways including Federal tax rebates, authorizing the U.S. Treasury to purchase or insure $700 billion in “troubled assets” (TARP), using these TARP funds as loans to banks to shore up their balance sheets, providing $25 billion to the U.S.
Auto industry, authorizing the $8,000 Federal tax credit for 1st time home buyers, purchasing mortgages and treasuries to drive down mortgage interest rates and providing Federal funds to assist in loan modifications. Are these actions working?
The National Association of Realtors (NAR) released May home resale data Tuesday showing that the pace of existing home sales dropped 3.6% in May. The figures showed a modest uptick from April numbers. NAR attributes the small bump to the $8,000 Federal tax credit for 1st time home buyers. Most studies show that bank lending has stabilized but it doesn’t appear to have risen to the point the Fed hoped for. Financing is still difficult to obtain in most cases. Bank foreclosures are still occurring at an alarming rate and are now affecting many so called prime or A-rated loans. The Case-Shiller U.S. National Home Price Index recorded a 19.1% decline in the 1st quarter of 2009 versus the 1st quarter of 2008, the largest decline ever. By and large, the actions of the Federal Government don’t seem to be solving our problems.
The data shows this crisis is real. I believe it will ultimately be the free market forces that will save our real estate market and not the Federal Government. As home prices have fallen, demand has begun to increase. There are neighborhoods in Las Vegas where homes are selling at 50-60% below their market peak prices at costs they could not be replaced for. Multiple offer situations are becoming common again as 1st time buyers recognize their opportunity of affordability and vie with investors seeking a safe haven for their dollars. Home prices are now at some of the most affordable levels in the past decade. If the government could focus its efforts more on job creation and retention fewer foreclosures would result and more confidant buyers would emerge. People need jobs to stay in their homes and/or purchase a home, regardless of the price and interest rate.
The worst thing that could happen would be for the Federal Government to complicate the free market with onerous regulations, bureaucracy and programs that don’t make that much of a difference. The unnecessary debt created might cause interest rates to rise, leaving homes unaffordable again. We have low home prices, we have low interest rates. The missing piece of the puzzle is jobs and a growing economy. The Federal Government must stay focused on job creation.
It is only time that will bring our real estate market back to normal. Market cycles like these take many years to play out. Home sellers don’t all reduce their prices at the same time. Buyers don’t all become employed again or a get a raise at the same time. The supply of foreclosed homes has years to go before it shrinks to manageable levels. Time and the free market will save our real estate market.
Kenneth Lowman is the Broker/Owner of Luxury Homes of Las Vegas and has specialized in the Las Vegas luxury real estate market for 15 years and is considered one of the experts in the marketplace. He employs a staff of four to assist him in the marketing and sales of luxury homes in and around Las Vegas. He can be reached at 702-216-4663 or firstname.lastname@example.org or on his website at www.luxuryhomesoflasvegas.com