Real Estate Insights - eNewsletter

Fuquay Varina Real Estate

9/3/09

It's been two weeks since my last update and the data has been piling in. As a result, hopefully you will find this contribution particularly robust. I like to track the overall economy as well as the Raleigh/Fuquay market, so I've included some macroeconomic data points for your perusal. Our overall goal is to educate clients. Educated buyers feel more comfortable and have the "courage of their convictions" when making real estate decisions.

Over the weekend my wife and I had our first baby. This was a very exciting event and nothing in the world could have prepared me for it. At about the 35 hour point (yes, of her labor) I had a startling conversation with the midwife. Seeing the never-ending pain my wife was in, I wanted to know how soon we could expect the little one. Mis-users of sports metaphors take note. The woman said we were in the 4^th inning! 4^th inning meant another 40 hours or so, and I quickly realized she meant 4^th quarter. In spite of what the headlines might be saying about this recession, the game we're playing is in the 4^th inning. That stated, I believe you can get hits anytime and in any market.

A Tale of Two Markets

A wise man once said "an incoming tide raises all buoys." This truism is accurate in reverse for outgoing tides as well, and both tidal events are concurrently in play in today's real estate market. Surprise of the day: homes under $200,000 are bringing in the tide. This price point is benefiting tremendously from the $8,000 first time home buyers incentive, and we are seeing a very clear "sellers market" as indicated by shrinking inventories and steady to rising prices. Further bolstering homes under $200k are government lending facilities. The secondary market for mortgage back securities, all but non-existent for other price points is flush with GSE (Fannie, Freddie) capital for FHA, USDA, and other low down payment, low rate programs. If you are a first time buyer, or shopping for a home in this price point, you will likely find that good ones go fast. The natural question is when and if this phenomenon comes to an end.

The bubbling market for homes under $200,000

As of now, Nov. 30^th marks the end of the free $8k for 1^st time homebuyers. NAR (National Assoc. of Realtors) will be lobbying heavily for an extension, and I think we'll see one. Headwinds from unemployment and struggling banks will force the issue for Congress. Right now the secondary market for commercial mortgage back securities is non-existent. With rising vacancy rates in commercial land and over $1 trillion dollars in maturing commercial debt over the next 3 years, a commercial/residential double whammy for banks would be too costly for the system. So I think DC does everything it can to ensure housing's recovery continues. The focus of their plan has been to bring new buyers to the market. So we have more to come from the free $8k. I also think we have more to come from the other key component to housings recovery: residential mortgage backed securities. If first time buyers can't get loans they don't buy, and if originators can't sell loans, they don't lend. The Fed is already midway through the purchase of $1,450bn in mortgage backed securities and debt issued by Fannie & Freddie. Amazingly they've spent over $750bn and only recently have we seen headlines of housing's recovery. There are a lot of crappy government programs right now, but this one is essential for more reasons than what's stated above. So the tale of story #1 is that homes under $200k will be racking up nice gains for the foreseeable future.

Homes above $300k. The rest of the story.

While homes priced under $200k are the beneficiaries of the incoming tide, homes in the $200's are in the "stagnant pool" of housings recovery. The outgoing tide, however, is clearly in the $300k+ market. So unloved is this price point in fact, that I will declare late 2009 as official mcmansion shopping season. Prices per square foot on completed homes have been driven well below construction costs and inventories have continued to mount. In all likelihood, less than 2% of the readers of this enewsletter are looking for a home in this price point! Extreme consumer risk aversion is a recent phenomenon, and in stark contrast to what we experienced in housing's hay day a few years back. Consumers have learned that leverage works both ways, so downsizing has ruled the day. It's not an original thought, but when people are heading for the exits it's usually a good time to see what's playing. Today's Feature Presentation is titled OPPORTUNITY. If you can swing it, the most significant long term values are found up and down this price category. I will issue a buyer beware: if you don't know where the deals are you will get burned. If you are hunting for equity, give me or another foreclosure expert a call - we'll provide the ammo. 

Overall there's reason for cautious optimism in the housing market. July nationwide supply data compiled by Mark McKenzie Real Estate Planning of Phoenix (MLS data from 24 US Markets that is more robust than Case/Schiller) showed massive inventory declines month over month and year over year in all markets surveyed. The # of month's supply on the market is now less than 3.1 in Las Vegas, Phoenix, and San Diego, which is nearly impossible to believe. These west coast markets can be good trend indicators, and with 6 months inventory being equilibrium, 3 months actually screams "seller's market." We will continue to monitor the data.

All the best,

Joe Worth, Managing Broker