Home Values at or Near Pre-Recession Highs in 1000+ U.S. Cities…or Are They?

Ask any Realtor, name the single most important  economic impact to housing and they will tell you, its jobs. Yes, it really is that cut and dry, you must have a job to get and keep a home. So, a recent article by RISMedia really caught my attention as it announced “Home Values at or Near Pre-Recession Highs in 1000+ U.S. Cities”. You see, I don’t understand how this can be, especially when you look at our employment numbers.

Back…right before the recession, our lowest unemployment number was 4.4% in May of 2007 and for all of us, the talk of a bubble was rumored to be some crazy economic conspiracy theory. During this time, we had NINJA loans and taxi cab drivers flipping 300,000 homes on the side with their interest only loans. To the best of my knowledge, those times haven’t returned and in fact, our unemployment rate is 6.3% and that doesn’t include the “real” unemployment number which includes all of those that dropped out of the workforce.

First, I asked myself, when was the last time we had a 6.3% unemployment rate and what was housing doing then? Well, the last time we had anything close to a 6.3% unemployment rate was back in September / October 2008, when the recession was getting into full swing. Housing then was terrible, prices were falling, foreclosure were skyrocketing and the industry started talking more and more about short sales. So, why is this 6.3% unemployment rate any different?

Truth is, it’s not. Regardless of your political persuasion, a 6.3% unemployment rate is still a 6.3% unemployment rate and as such, we really should be seeing similar housing prices and trends to what we saw back in 2008. So, why aren’t we?

In my opinion, the biggest single reason why housing isn’t acting the same as it did in 2008 is because of the loss mitigation techniques employed in recent years by many of the “to big to fail” servicers who contributed to why we had a bubble in the first place. Let me be more specific

When a bank gives John Smith a loan for a home, the bank relies on the fact that John will be able to pay back that loan and, build equity. A lot of people don’t understand, the bank needs both things to happen otherwise they loose out big. You can build equity at least 2 ways. First, you build equity by forced savings when you make a mortgage payment each month. Secondly, you build equity if home prices rise, either way, you build equity. For many Servicers (Banks), who gave out risky loans, their clients like John Smith, bought a home he couldn’t afford and therefore, couldn’t build equity and before you know it, John was in a negative equity situation, that is, he owed more on the home than what it was worth. Now, sadly, these banks have lost money however, it’s not really the “banks” money so much as it’s the money of the banks depositors…you and me. Well, some banks, lent out so much money that they were actually concerned that if a run was to happen on their bank, they literally wouldn’t have the cash on hand to actually pay people back on their deposits. That’s right, you could have ended up going to the ATM to withdraw your money and the ATM has no money to give you. Granted, it’s a bit more complicated but, you get the idea.

In order to lessen the impact or mitigate the loss of these bad decisions, many banks moved these non-performing assets or clients like John Smith to shell companies called NBS’s or Non-Bank Servicers. This way it looks like they took the loss on their books and that they are “recovering” and doing much better. The reality is, they have these NBS’s hold these NPA (Non-Performing Assets) in this shell company by offering clients like John Smith some type of deal to “save their home from foreclosure”. These schemes will keep the homeowner in the home for years if necessary, just to prevent the foreclosure. Obviously the more foreclosure a bank has on it’s spreadsheets, the worse the finical condition it appears to be in and WallStreet isn’t having that.

So, here is where it gets very interesting. Let’s say, you have a neighborhood where 25% of the homeowners are upside down, granted….we all know that’s actually a very low number for most of us. The vast majority of the country is still in a Negative Equity situation and per the article I referenced above, it eludes that only about 30% or less of America is in positive equity so that means that 70% of us still haven’t recovered. None the less, let’s say that 25% of a neighborhood is upside down and of that 25%, let’s say 70% of them are owned by Great Bank. Well, Great Bank knows the law of supply and demand and then decides to do some “save my home” schemes and hold foreclosure at bay by offering to keep homeowners in their home at all cost. Sounds ok…right?

Well, it’s not ok because, what they are doing is artificially creating a bubble by using loss mitigation techniques through NBS’s. That’s right, you see an increase in prices, even thought unemployment hasn’t gotten good enough to warrant the price increase in a free market therefore, it’s a bubble. At the very least, you will see a turbulent few years of peaks and valleys in prices because the bank is slowly, trickling inventory on the market as prices rise to capitalize and lessen their loss. Keep in mind, because they own so much inventory in that particular neighborhood, they are literally able to control the price by simply controlling their own inventory and therefore, they can pick and choose which neighborhoods win and which suffer a foreclosure influx.

Now, take that and add the new QL (Qualified Loan) guidelines release this year, the pull back of QE (Quantitative Easing), the further tightening of credit markets with bank to bank lending and what do you end up with? You end up with a completely unjustified housing price bubble that you better be concerned with.

Sure, right now, it doesn’t seem that it’s too bad but, if this continues through the circular selling season and into the fall or even winter of 2014….I would be very cautious…very cautious.

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Jesse Gonzalez is a highly accomplished and respected real estate professional with a wealth of experience in the industry. With a career over 15 years, Jesse has established himself as a leading real estate sales and marketing expert.

As a licensed real estate agent since 2005 and a broker since 2008, Jesse has a comprehensive understanding of the complexities of the market. In 2013, he founded his firm, Liberty House Realty, LLC demonstrating his entrepreneurial spirit and commitment to delivering exceptional service to his clients.

Jesse's expertise extends beyond traditional real estate transactions. He obtained his Registered Appraisal Trainee in 2019, providing him with valuable insights into property valuation and market analysis. Although he decided to focus primarily on sales, his appraisal background gives him a unique advantage in understanding the intricacies of property values and trends.

With a dedication to excellence, Jesse consistently achieves outstanding results for his clients. Last year alone, he closed over $20 million in sales and received the prestigious Sapphire Award from his local association, recognizing his exceptional achievements in the industry.

Beyond his successful career in real estate, Jesse is passionate about education and personal growth. He is completing his undergraduate degree in Forensic Psychology, with plans to attend Law School in the fall of 2024. Jesse's ambition is to become a real estate litigator, focusing on real estate consumer protection law and advocating for the rights and interests of homebuyers and sellers.

As the owner/operator of the nation's largest social network for REO professionals, <a href="http://www.REOProNetwork.com">www.REOProNetwork.com</a>, Jesse has positioned himself as a thought leader and industry influencer. Through this platform, he fosters collaboration and knowledge-sharing among REO agents, attorneys, asset management firms, and other professionals in the field.

With a commitment to professionalism, integrity, and providing a personalized experience for his clients, Jesse Gonzalez is a trusted advisor and a driving force in the real estate industry. Whether assisting clients with buying or selling properties, he consistently goes above and beyond to exceed expectations and ensure successful outcomes.

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Comments

  • I have been saying this for a while now. I noticed a bigger change in Oct. of 2013. Multiple offers dropped, some price reductions in certain price ranges. I noticed under $500K price reductions were made and under $700K property lasted longer. Many variables; asking a lot for a non-rehab or poorly completed rehabbed home, neighborhood is not worth that amount. Ask yourself how many people do you know that can make $10-15K a month without having to second guess what their income will be next month. I don't know that many. Moreover this market is being manipulated and controlled by a few. The only one really making a killing in this market is the Non-profit, Hedge Funds, and Auction companies. They are buying at pennies on the dollar, holding and getting top dollar. Auction companies are getting away with forcing sellers to list their properties via auction if not their lenders will foreclose on them, let along charging buyers a 5% premium, and paying listing agent 1.5% commission. If I recall correctly we can't force anyone to use a lender therefore why are the Auction co. allowed to force sellers to auction their properties. Furthermore in Orange Co. There are tons of vacant/lease building showing un-employment is hurting this economy. I have spoken to a large amount of people an no one has interest in selling because they're living in their home for FREE over 2.5+ years. How is this fair for everyone else trying to buy a house with no inventory and forced to pay top dollar in a property that needs at least $50K worth of repairs. The inventory is definitely there its just a matter of time and I truly believe that time wont come to pass until we have a new President. Note you may use your Title Co., Foreclosure Radar, and many more systems like them to see all the Notice of Defaults. Its truly alarming. Maybe just maybe if we have buyer submit lower offers for each and every property, values will drop to affordability and have the rest of the inventory come to play as sellers and banks will fear they will lose more money if they don't.

  • While things have slowed substantially, you are right that this does not mean things are back to normal. Underwater properties generally can't sell w/out a short sale. Many banks can't afford to take another write down on portfolio value and do everything they can to keep the prices where they are. Mandate, shmandate, this is more a matter of economic survival so reserves don't have to increase any more than they are now. Also, despite all the cheery language to the contrary, many banks are still dancing around  the short sale process and using loss mitigation techniques as a false flag. Add that to one generation that wants to downsize & hope to retire someday plus another generation that is too broke, in debt, and underemployed to qualify in many cases & you are left with anything but a robust housing market. The only bright spot is that there has been so little construction over the past few years it should keep inventory tight which will help keep a floor under the market.  

  • One of the issues is the current administration in the Whitehouse has mandated and does not want all the foreclosures in area released during his tenure. There is moratorium after moratorium in California to slow the process of foreclosing. Fannie Mae has 80,000 properties in some type of foreclosure process in California alone. A lot of homeowners have not made a payment in 2-5 years and still living in the property today. Right or wrong the housing market will not fully recover until the these glut of homes, foreclosures, short sales come to an end at some time in the future. 

  • From my perspective prices/values are where they are at because we have a much smaller real estate market than in past years and decades.  Inventory shortages in my area have become the primary driving force of increasing property values.  In my opinion, anyone who is saying that housing values are increasing because of a recovering economy are just plain wrong.  The economy is barely bouncing along, even with artificially low interest rates from the Federal Reserve.  We have record unemployment and crucially, underemployment, inflation in food and gas prices, and more people than ever on food stamps and other welfare.  With so many people unable to move home because of the economy, we are seeing fewer properties on the market as some of the REO inventory starts to clear out. 

    Bottom line is, the fluidity of the real estate market won't return until the economy actually starts to grow again.  I am inclined to agree with the conclusions in this article regarding the potential for a bubble in the market.  It is as though the free market is trying to tell us that there is a problem and yet the government and banking interests are determined to do anything to prop up the market.  You can't fake a recovery with artificial measures.  House price rises give the appearance of a recovering economy but this is a false impression. 

    Good article. 

  • Many cities are unlikely to reach that old threshold.  For Silicon Valley even some neighborhoods are still not there and most likely unable to return to the speculation practiced. Home owners are more selective getting loans and are picky where and how much they wish to commit. Better neighborhoods have been enjoying a second wave of price increase. Stock optioners do not hesitate to pay $100K, 200K or more to secure a good home as they know their option can go down.

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