Why the Happy Face on Housing?

Why the Happy Face on Housing?

Why the Happy Face on Housing?

Newspapers and smiling TV commentators have been telling us for several months that the real estate market and economy are improving, and may soon return to pre-2006 growth rates. While I don't believe that for the economy in general or for real estate in particular, I'll focus more on real estate here.

My local newspaper, the San Diego Union Tribune, just announced that housing prices in May increased by 15% over the previous year in the county, so everything now looks to be just fine. They skim over the facts that the mix of houses sold has changed and that there are still huge numbers of defaults occurring across the nation.

Here are a few key reasons why I think that the housing market is poised for another dip, if not for an outright fall:

High Unemployment - Unemployment remains high, especially for the long-term unemployed, and the economy is exceedingly fragile.

Government Subsidies Both direct and indirect subsidies can only last so long, especially with the government going broke. The homebuyer tax credit has ended, and interest rates cannot be lowered any further.

Oversupply of Homes Millions of houses, condos, and commercial buildings across the country stand vacant. Plus, banks have billions of dollars worth of defaulted property on their books for which they are just biding their time before putting those properties back on the market.

Mortgage Re-sets Billions of dollars in loans will be resetting to higher rates during the next couple of years. Higher rates mean higher payments, which mean a lot more defaulted properties.

There is no easy or cheap answer to the mortgage crisis, just as there is not one for curing the overall economy. Getting government subsidies and stimulus packages out of the way would cause short-term distress but give us more stability long-term.

If you're trying to sell a property, you already know that most buyers will have a problem getting a loan. I encourage potential property sellers to consider using owner financing to create a mortgage note (also called a real estate note). After selling the property, they can keep the note and collect the payments, or they can sell the note to a mortgage note buyer.

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