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2.9% Contraction, Worries Economist of Double Dip Recession

Per the US Commerce Department on Wednesday 6/25/2014, the US economy contracted at 2.9%, which was much greater than predicted. To put this in perspective, our economy hasn’t contracted this much since 1^st quarter in 2009, when our economy had shrunk a little more than 4.5%.

In light of this news, economist are scrambling to place blame and figure out what happened. Some of the proposed culprits are….

1. Unusually cold winter. Some economist are blaming cold weather in winter however, other economist are saying that even with cold weather in winter, a contraction of 2.9% is just too large to blame on just cold weather.
2. A down revision of consumer spending. Consumer spending is the single largest impact on our GDP. In fact, this metric accounts for nearly two thirds of our economy. It was originally reported that during this time, consumers spending was up 3.1% however, it was later revised down to only 1%. Economist are pointing to the decrease in consumer spending is a major drag on the economy. Furthermore, they are pointing to the lack of consumer spending being a bigger issue about consumer confidence….or at least the lack thereof.

So, what does this mean to Nashville real estate and your home value?

Home values have proven over time, they are a safe long term investment. They provide owners a way to build true wealth through forced savings and tax subsidies so, for those people who intend to stay in their home at least 5 years the immediate ups and downs of your homes value shouldn’t be a major economic concern for you and your family. Hold tight and you will weather the storm.

For those who will be looking to sell their home in the next 6 – 24 months, your home value is going to greatly depend on the stability of your neighborhood and the attractiveness of its amenities to potential buyers. Now, more than ever, it’s not just a homes upgrades and features that are going to protect your homes value. More often in turbulent economic times, home values are protected by neighborhood and community amenities like, ease of livability, ease of access to employment and ease of access to entertainment.

In recessions, the homes at the greatest risk to see a reduction in value are those homes located in neighborhoods where commuter times are lengthy, access to shopping means traffic and congestion and few to no entertainment venues are immediate available. Home with deferred maintenance or suffering from neglect will see the biggest fall in value. Neighborhoods with low pride of ownership will see the second biggest loss in value and finally, communities with high mortgage default rates or have very little access to viable employment opportunities will be third in line to see the biggest loss in value.

Homes that will stabilize and maintain value or possibly even increase in value will be those homes that are located in high desirable neighborhoods. If we had learned one thing in 2007 / 2008 Great Recession was, highly desirable neighborhoods can hold their value….and some can thrive.  They are far and few between and definitely don’t necessarily mean just because you live in a nice neighborhood that your neighborhood is highly desired so understand, each neighborhood is different.

To learn your homes value and receive a free email report pulled directly from the local real estate boards sales sheets, visit www.MyNashvilleHomeValues.com

Unemployment Rises and Hopes of a Wide Spread Housing Recovery Begin Falling.

Many of you have been hearing that in some areas of the country, home prices are rising and sales are starting to recover however, it has been my argument that with an unemployment rate above 8%, this recovery is a false recovery brought on by REOs being held off the market for political gain.

A 8.3% unemployment puts us back in the unemployment numbers of February of 2009, per the Bureau or Labor Statistics (see graph below) and if my memory serves me correctly, REO Listings Agents were slamming and jamming. That is, it wasn't uncommon for mega REO agents to be closing a REO a day. Yet, here we are with the same, if not worse unemployment number and REO has dried up much like the unprecedented drought in the Mid-West.

Granted, a 8% (+) unemployment rate isn't good however, it's not the "real" unemployment rate. Keep in mind, that number is only reflective of the people claiming unemployment for the first time and those getting a government paycheck from unemployment insurance. The reality is, many more people have fallen off the unemployment radar because they have exhausted their benefits and are no longer counted however, they do count. The Government does release this "real" unemployment number and it's called the U-6 which as described provides a more complete tally of how many people are really out of work. As of today, this number is 14.9%, according to the Bureau of Labor Statistics.

At a 14.9% U-6 number (Real Unemployment Rate), I have one question....... Where are all the REOs?

It's no secret, the Federal Government is doing all it can to keep people in their homes and as noble a cause that is, it doesn't change the fact, you can't pay a mortgage without income. Many of us in this industry have known for years, the banks, Fannie Mae, HUD, etc.... are holding massive amounts of REO inventory off the market. I understand why, if it was dumped on the market, we would collapse the US economy in a way never before seen but, to not release the inventory in hopes of artificially inflating the market you do more damage in the long run.

So, what damage is done by holding on to these REOs and not letting them hit the market?

Well, I am no economist and I don't play one on television however, I have a working man's knowledge of my industry and can tell you what I have observed. I will focus on one major negative that I see because I don't want this blog to become a book.

1. Paradigm Shift: Back in 2006 / 2007, when you weren't able to make your house payment, you knew that in about 3 months or so, you were going to be evicted and your house was going to be sold at auction. This is no longer the case. The last relocation assistance package I negotiated the man had been living in the home for 52 months without making a payment. This seems to be happening more and more. That is, I am seeing more people living in the home for 15+ months or longer before I am even called out to offer relocation assistance. This increase time that people have to free load causes an incredible shift in how people view foreclosure....or better yet, just paying their mortgage. It causes people to become entitled, lazy and even belligerent or combative about the relocation assistance or ultimately the eviction. They start feeling, thinking and fighting for their "right" to keep their home. They start acting and believing they are owed the home even though they can't pay the debt.

With all of this, where do we go as a country? Who do we look to? As America has done and I believe as we will do, we will look inward. We will realize our mistakes and we will recover, just when that happens, I don't know.