Back to the Future

As we contemplate the pending revival of the housing market, it is interesting to go back in time and review what the so-called experts were saying about the upcoming economic slowdown and the ever expanding housing bubble. While most prognosticators predicted that we would see a gradual slowdown in the housing market and a subsequent slowdown in the overall economy, very few accurately predicted the depths to which we would fall. We did find one group that accurately (almost eerily) predicted the predicament that are currently in. The economy tracking and predicting website iTulip.com published an article on January 20, 2005 with the following statement "Housing bubbles don't collapse suddenly. They go through a long series of self-reinforcing deflationary stages that typically last five to seven years. Given the extreme and unprecedented nature of the current housing bubble, I expect a 10 to 15 year downturn to follow this boom. The government will step in with all manner of supports and bailouts along the way, similar to those that created the bubble in the first place, so the exact trajectory of the decline is impossible to predict." While we don't believe the iTulip.com prediction of a 10 to 15 year recovery, their foresight was right on.

Further, the article (remember, this is from January 2005) went on to state "As transaction volumes continue to fall, demand for housing-related employment will decline too. The first signs of labor market distress will start to show up, as more and more of that 43% of the private sector who found jobs in the housing industry are no longer needed. Coincidentally, major employers - such as the U.S. auto industry - will be going through major restructuring, adding pressures on housing prices in some areas." This is pretty heady stuff considering it was written three to four years before the ultimate collapse of the auto industry. The iTulip.com article is basically a step-by-step account of what was about to happen to the housing market and overall economy.

As we mentioned previously, we think that the housing industry is in the early stages of recovery and don't buy the 10 to 15 year recovery time that iTulip is predicting, but it is interesting to go back to the future and review some accurate fortune tellers. You can review the entire iTuplip.com article from January 20, 2005 here.

Someone We Should All Get to Know

As we all know by now, the $8,000 first time homebuyer tax credit is set to expire on November 30. In all practicality, the tax credit has already expired for homebuilders who don't have any specs to sell as it will take longer than the three remaining months of the credit to build a new home. The man in this photo is Johnny Isakson (R-GA) and he is fighting like crazy to not only extend, but expand the bill. He has introduced a new bill in the Senate that will extend the tax credit through 2010, open the bill to all homebuyers, regardless of income and expand the bill to $15,000. You see, Senator Isakson understands that real estate and homebuilding will lead this country out of recession. He gets the fact that between 300,000 and 350,000 home sales can be directly attributed to the $8,000 tax credit and that each sale generates approximately $63,000 in downstream revenue elsewhere in the economy (furnishings, landscaping, appliances, moving expenses, etc.).

If this amount of sales and revenue can be attributed to a measly $8,000 tax credit available only to first time homebuyers, imagine what a $15,000 credit open to all buyers will do for the housing market and overall economy in 2010. Yes, Senator Isakson (along with co-sponsor Christopher Dodd, D-Conn) could probably use our help in convincing our local Senators and Congressman that extending and expanding the homebuyer tax credit is probably a good idea. You can reach Senator Isakson's website by clicking here.

Now is the Time to Buy a Home (According to the WSJ)

The Wall Street Journal Online posted an article this morning about how NOW is the time to buy a home, and they make some very good points. Prices appear to have bottomed out, both nationally and in Chicago, according the the Case/Schiller Price Index. If you look closely at the Chicago MLS numbers, this region reached its price bottom in February and has steadily increased each month since then. Conversely, sales activity has also picked up in the same time frame and has now reached the same levels that we were at for the same month last year. So it appears that buyers are getting the message and realizing that now might be the best opportunity in their lifetime to buy a home. Of course, many of these buyers are rushing to take advantage of the $8,000 tax credit before it expires on November 30.

As prices continue to inch upward, more and more buyers will finally jump off the fence and back into the real estate market. It will take a little longer for buyers to return to the new home market since new units are typically priced a little higher than resale units, but they will return none the less.

All of the Chicago facts and figures are highlighted in our Chicago Perspectives Newsletter which is available on the left side of this blog. Below is an excerpt of the Wall Street Journal Online article. To read the entire story, click here

Passing through the Fort Myers, Fla., airport a few weeks ago, I noticed people eagerly signing up for a free bus tour of foreclosed real estate—with all properties offering water views. During the ride to my hotel, the young driver volunteered that he had just bought his first house, paying $65,000 for a foreclosed property in nearby Cape Coral that last sold for over $250,000. He said he had never expected to be able to buy anything on a driver's salary, let alone something that nice.

Last week, Standard & Poor's reported that its S&P/Case-Shiller U.S. National Home Price index of real-estate values increased this past quarter over the first quarter of 2009, the first quarter-on-quarter increase in three years. Its index of 20 major cities also rose for the three months ended June 30 over the three months ended May 31, with only hard-hit Detroit and Las Vegas experiencing declines. The week before that, the National Association of Realtors reported that sales volume of existing homes was up 7.2% in July from June.