Are we there yet? Are we there yet?

Anyone who has traveled with small children is certainly familiar with that impatient refrain - Are we there yet? We are also seeing and hearing it about a recovery from the current recession. There are stories every few days in the papers or on the TV news about hopeful signs of a recovery, ort at least signs that people hope are pointing to the recovery. Those are almost always followed by more reports of increased foreclosures or looming ARM resets or other dreary news that portends a longer down period.

We have certainly seen an up tick in sales of existing homes across the country, as first- time buyer rush to beat the deadline to qualify for the first-time buyer tax credit of up to $8,000. There has also been an increase in the sales of lower end homes, most of them foreclosures or short-sales, as investors and others take advantage of the misfortunes of others. I’ve also noted the increase in sales of owner-occupied homes above $200,000, albeit a small increase. Even that small increase is a welcome sign that things are loosening up a bit. But are these signs enough to say that we are there – that we have reached the bottom of this recession and started back? Not yet.

Prices are still declining across the board, although not at as precarious a rate as has been the case the last two years or so. We’ve seen drops in value in this area of southeastern Michigan between 12 – 18% for two years running. Last year we actually dropped 18,5% in Milford. We seem to be down somewhere between .5 and .75% per month loss in value right now, which would put us at 6-9% for the year. I hope that is the case. That would indicate that we are approaching the bottom of this thing.

One fear I have is of an overshoot on the part of appraisers, as far as devaluation goes. Appraisers have been very conservative and have baked a few months of continued value decline into most appraisals lately (actually for the last year or so). Depending upon when they believe we have bottomed out and turned back to positive appreciation, they may overshoot on the downside with their appraisals and cause us even more problems. Homes that don’t appraise are one of our biggest problems right now, along side dealing with lenders taking too long on short sales and foreclosures. In a pure, free market a home should be worth whatever the buyer agrees to pay for it that the seller is willing to take. In our market it’s more about what the lender is willing to lend on it and that often has lots of risk baggage baked in.

The whole lender issue is a major contributor to the lackluster owner-occupied market. In many areas it is almost impossible to get a non-FHA loan – a conventional loan – and don’t even try to talk to the lenders about jumbo loans (any loan over $417,000 in our area). It’s as if the mortgage industry just put a “Closed” sign in the window for conventional loans. That will have to change in order for us to get out of this mess and we’re not there yet. The other biggie for us in Michigan is the uncertainty in our job market. We are not yet half way through the fall out from the bankruptcies of GM and Chrysler. We are now seeing the ripple affect through our automotive supplier base and that has to trickle down through the next 2 tiers.

I’m of the opinion that the economists who predicted things would bottom out and turn around in 2010 are probably right. Although the turnaround will take place at different times for different parts of the country, by sometime in 2010 we ought to all be headed in the right direction again. Then we’ll see if there is really pent-up demand for housing, like some have forecast. There should be a positive rebound affect sometime in 2011 to 2012 as the people who lost houses during this recession and have had to rent will finally be able to get back into the mortgage market and buy a home again.

For now, the first-time buyer tax credit is helping at least get something moving, as did the "cash for clunkers" program for automobiles. Both were short-term programs however, so they really had little lasting impact; but they did help clear out some inventory. The car companies had to add shifts to rebuild inventory and homebuilders will likely start building new homes again (that’s already happening in some parts of the country). In both cases what is built will need to be smaller, more efficient and cost less to buy and operate. Are we there yet? No, but we’re on our way.