Steady progress ahead, but little excitement…

There are lots of stories and anecdotes that could be cited to support the wisdom of a “slow but steady” approach to things. As I look back over the real estate market data that I’ve collected for the past few years and especially at the 2010 data, I can see that we seem to have reached the bottom of this recession-driven market and are at long last headed in a better direction. The turn-around certainly isn’t very dramatic, just a slow easing of the downward spiral and an ever-so-slight upturn over the last few months of 2010. It is, as a well worn and perhaps overused analogy states, like turning a huge oil tanker – a slow process.

In my market here in Michigan, we still have a fairly hefty overhang of distressed properties – either already foreclosed or in some state of delinquency and headed in that direction. Short sales and foreclosures averaged above 50% of overall real estate sales for all of 2010, with no end yet in sight. We also continue to have one of the higher unemployment rates in the country – officially at 12.7%, but estimated to be as high as 25% if the people who have given up are counted, too. Yet there are people out buying. I’m hitting a lot of investors right now, who are out bottom-feeding on the great foreclosure deals that are there right now. They are providing a service by buying, fixing up and renting out these places. Otherwise many displaced people would have nowhere to go. Leases make up about 25% of our local real estate transactions right now.

I read all of the press about things getting better, some of it wishful thinking or self-serving cheerleading from various real estate sources. I see those articles in our local papers, too; but they almost always come with some local grain of salt thrown in about our market, especially the Detroit Metro market. We certainly have market pockets in our state where things never got all that bad – the western side did better that we did in southeastern Michigan and our college towns fared better than others. We also have pockets that have been hit even worse than has been widely reported – Detroit, Pontiac, Flint and Ypsilanti come to mind.. In those areas one can find thousands of houses for under $10,000, which is less than the land values should be.

I’m convinced, however, that we have turned the corner and that the worst is behind us. I’m trying to help my clients understand that this does not mean an immediate return of the lost value in their homes. As I’ve opined here before, that value is gone and will never return. Prices will eventually recover somewhat, maybe even completely; but that won’t mean that lost value has magically returned. Even on the price front, I’m advising that it will take at least a decade to get back to 2005-2006 price levels, if ever. We are not yet seeing real appreciation in most of my markets, just a slowing of value loss – a leveling out of the market. Real appreciation in property prices will perhaps occur later this year, but then so will inflation, the net of which may wipe out any true value gains.

So, like the turtle in the race with the rabbit, we will likely see a slow and steady improvement of things in the real estate market. In any one month we may even slip back a bit, as banks dump more foreclosed inventory onto the market; however, overall I expect that we’ll start to see more and more move-up buyers return to the market (that’s where the so-called “pent-up demand really is) as the economy improves and people get a little better feeling for the future. It appears that we’ll be in for a prolonged drama in Washington and perhaps a few scary moments as the new Tea-party Republicans flex their muscles. Fortunately, Washington is so dysfunctional that they probably won’t even get the disruption that they have in mind right. Still it might provide amusing fodder for the nightly newscasts.

All-in-all let’s hope that 2011 is the year of the unexciting turn around in our real estate markets. It will pay to keep an eye out for whatever the sleazy scam artists come up with to make a fast buck in that type of market. They moved on from providing questionable loans to packaging up questionable investments based upon those loans to providing fake loan modification services and now will have to come up with another way to scam the public and investors on real estate. Perhaps they are the ones posting those “Cheap Bankruptcy” signs along the roadways.

It would somehow be ironically appropriate if the idiot who took out a no-doc mortgage without having a job and was foreclosed upon by the investor owners of the pool who bought the loan, now had to declare bankruptcy because the company that he pre-paid for a loan modification went under and is now offering bankruptcy assistance for a slight up-front fee.

Happy New Year!