If the recession is over, how come…

We are getting lots of signs and pronouncements from various officials and economists that the great recession is over. Even Ben Bernacki, the Fed Chairman, has called the end of the recession. At least, they say, it has bottomed out and we have started back. I guess that’s good news, but unemployment is still high, foreclosures are still increasing and property values are still falling, at least in Michigan. So, if the recession is over, how come my house is still losing value? I get that a lot these days.

Like many other answers that we are searching for these days, the reasons for the continuing fall of home values are complex and not easily covered by cheery pronouncements of the end of the recession. The continued high unemployment has given rise to even more foreclosures in the housing market, these not caused by ARMs resetting so much as by one or both earners in the family being out of work. Many homeowners depend upon having two good income streams in order to maintain their lifestyle. The lost or cutback of one of those incomes can be devastating to the family.

In our area the cutback of overtime alone has resulted in many homes being lost. Many of our automotive-oriented families counted on overtime as the means to pay for the house and the toys and the other things that came to symbolize the middle-class lifestyle. Drive through any middle class area and you’ll find the Harley’s and the street rods and the jet skies and other toys with for sale signs. When times are tough the toys must go. But that is just the tip of the iceberg. The real losses are the homes that these same workers can no longer afford and they are adding to the already bloated inventory of foreclosed and short sale homes on the market today.

Another thing that has happened (to use a sentence that sounds like something that Yogi Barra might say) is something that hasn’t happened. The Government program to encourage banks to do loan modification has gained almost no traction with banks and most still are not doing anything to help distressed borrowers refinance their homes into affordable loans. It just hasn’t happened. Most banks seem to prefer foreclosing on their clients than trying to work with them so that they can keep their homes.

So, in our area, foreclosures continue to drag home prices down. Home prices are now down between 35-50% from their peaks just 3-4 years ago and continuing to slide. The pace of the decline has slowed and that’s good news; but, for homeowners who bought 3-4 years ago it’s way to late to save them. They are so far underwater on their homes that they have little choice but to walk away when they get into distress and that just adds to the problem.

Is all lost, then? Is everything gloom and doom? No. If you are a buyer, it is still a great time to buy and first-time buyers are snapping up bargains all over the place. If you are a seller with 10 or more years of ownership you should still be OK. You won’t be as happy as you had hoped with what you can get, but you can still sell and then maybe you’ll become a happy buyer, too, and make some of it up on that side. And if you were a real long-term owner, the paper loss you are having trouble dealing with was just that – a paper loss. You still made out OK on that house you built or bought in the 60’s or 70’s for $50-100K and are now selling for $200k (instead of the 350K it was worth a few years ago). Give it up and get over that loss. You had a great place to live for a long time and still made out on the deal.