Real Estate Recovery

For the first time since the real estate collapse, we have seen several indicators move up at the same time.  The most persuasive generally are the new building permits and the Case/Shiller index showing 19 of 20 markets moving up.  Mr. Shiller, who famously warned of a real estate bubble in 2004, was interviewed yesterday about his views on the index results.  He was notably cautious and said if the numbers continue to move up like this he will be optimistic.

We should respect his views and the authority with which he wields it (I know it's hard for you Harvard men and women to defer to an Eli from New Haven).  We have many indices to consult on home values, including FHFA tracking of 379 real estate markets.  In our business, we don't have the luxury of relying on national or regional trends.  We're focused on local influences, and fortunately there are tools to help there. 

Other factors constrain us - or at least add complexity.  For example, Millenials (those born after 1982) prefer renting.  The rental market, even for single family homes, is hot with prices rising and supply short in most places.  We have to factor rental market influences both as a preferred lifestyle alternative, and on how they affect home sales.  Some have told me they wish appraisers had paid more attention to the rental v. home price gap in markets like Miami prior to 2008, and that we should take a lesson from that experience. 

We also have to keep in mind that millions of foreclosures, delayed due to several influences, are once again entering the pipeline.  Since about a third of these are suburban homes, be on the lookout for activity and concentrations in markets your clients move people into and out of.  There is good data on this activity from several government websites, and from RealtyTrac.

All in all, despite the fits and starts of past predictions that recovery was underway, my view is that we are in a slow climb nearly everywhere.  Except for local influences that might bring a market down (a plant closing, base closing, storm impact), we should see continuing modest improvement.  As I wrote in early 2009, the Fed will continue to keep rates low and mortgage rates will be at or near historic lows for a long time to come. 

I'd like to hear your views.