National Economic Update.  Incline Village continues to buck the national trend in sales:

Every recovery has its false starts. It isn't difficult to remember, for example, an op-ed piece published a year ago in The Wall Street Journal that declared the real estate market had reached a cyclical bottom and was now moving toward recovery. That pronouncement was a bit early, and we have had enough such pronouncements to make us very skeptical of such optimism.

The judgment of The Economist, for me, is another matter. It is sober, cautious and reserved...and it is currently looking for a recovery in the real estate sector. Of course, this won't happen overnight. In truth, as is always the case, it has been building for months and will only become truly evident after we start to get some surprisingly positive numbers for real estate sales. At that point, potential homebuyers will sit up and pay attention to the changing economy and, noticing that real estate prices are starting to firm and rates are starting at last to rise, they will make the purchases they've long been waiting to make...especially if jobs data remain good. And real estate indicators will turn positive.

We've been waiting a long time. It seems to me we deserve a party--some kind of celebration with which to welcome the return of an active real estate market. But it's too soon for that, and when the time comes it will probably already be old news. Enjoy it by keeping your eyes peeled for positive changes. They're on the way, though I wouldn't yet bet the bank on it.

Commentary ~

May 25, 2011

At this point, most of us have been surprised and disappointed for so long by negative news from the real estate sector that we are very likely to reject any intimations of recovery, as if they were a mean masquerade, playing upon our emotions. Further, we are unlikely to dig as deep as is often necessary to find the bits of good news among the bad.

 In short, this is precisely the kind of market in which famous investors like Bernard Baruch became extremely wealthy in the past. It has scared most potential homebuyers and investors into hiding, and they’ll only start buying again when it’s clear to the crowd that the market is turning at last—or, more likely, has already turned. Meanwhile, the Contrarian investors have built up stunning portfolios of bargains.

 Why are homes so slow to sell now? Note, for example, the MBA Mortgage Applications Index. With mortgage rates falling to very attractive levels in recent months and weeks (over the past six weeks, mortgage rates have fallen roughly 50 basis points, or half a percent), the number of people seeking to refinance their home loans has rocketed higher. But what about the number of purchase money loan applications? For the week ending May 13, as you can see, they dropped by 3.2%.

 Part of the problem, as the National Association of RealtorsÒhas been arguing vehemently of late is (1) it is, in the judgment of many professionals, far too difficult to qualify for a mortgage with which to buy a home. The average down payment has risen to roughly 22% in recent months, required credit scores have been taken higher, making it both more costly and more difficult to get the loan a homebuyer needs. And (2) a large number of transactions have been cut off from closing by appraisals that may be unjustifiably conservative, with appraisers apparently making sure they don’t appear too lenient in their valuations.

 This won’t last, of course. Lenders have never made much money by avoiding lending, and appraisers will regain a more workable sense of where this difficult economy is headed. Indeed, the May 21 issue of the duly-esteemed newsweekly, The Economist, suggested that—in spite of continuing poor news about foreclosures, sales volume and home values—“there are signs this may be the darkest hour just before the dawn.” Recovery, in short, is already on its way.

 Look at rising rental rates, at declining vacancy rates, at superb interest rates and the very slowly healing credit markets, the gradual improvement of job formation, and the obvious pent-up demand waiting to be met. The time has come to watch for signs of improvement, knowing it will take the markets, the press and the public a while to see them clearly. Why not be among the first to see them?