Fresh Breeze in 2013?

Anyone who loves sailing has experienced the slow death by calm winds experience.   You sit motionless in the water hoping that either the tide and current are with you or enough air movement kicks up to at least stop your ropes and stays from slapping the mast and making noise whenever the boat tips a little from side to side.  The sailor in you fights the urge to start the motor, burn smelly fuel and drown out the peaceful calm.   Every time a tiny gust puffs the sail, you hope the weather is changing and you won’t need to motor at all.

Opinions are divided pretty evenly on whether the current tiny gust of home sales and new construction starts constitutes the front side of a steady wind or the last gasp at the beginning of more dead calm.    Realtors, loan officers and builders trumpet the 6% gain in sales in February in Virginia over a year ago.   Others, like economists not on the payroll with the current administration in Washington DC, site the fact that there is still far too little recovery from the high unemployment rates of last year and most families that live from paycheck to paycheck are far too insecure about their employment prospects to make changes in housing.   Tidewater (Hampton roads),  is bracing for a large share of Virginia’s estimated loss of 70,000 jobs if present defense cuts are implemented.  Many civil servants have already taken 20% pay cuts!

Given these clouds on the economic and real estate recovery, and the normal trend in the graying of America toward downsizing or even minimum age communities or assisted living, there will be some exceptional deals available in the “high end” real estate market throughout the Commonwealth of Virginia.  Demand for smaller homes, single story homes, and more affordable homes may well still exceed inventory and keep prices in this market segment disproportionately high.  The flip side of the coin is that more short sellers than ever are escaping underwater homes in the modestly priced home segment and doing so without deficiency judgments or lingering promissory notes.

CAVEAT:    Demand has changed under the current tight rules of lending.   A realistic view of just how robust this recovery is in certain market segments can only be had by evaluating Demand and Ability.    In our experience as a real estate settlement firm in southeastern Virginia, those few savvy sellers who price correctly to get multiple offers are opting for cash offers much more so than in the past.   One insightful explanation of this perceived trend is found in BUSINESS INSIDER . COM.   In an article entitled:

There Is One Crucial Obstacle To The Housing Recovery

the authors point out that the lending industry cannot turn on a dime . . .  after over half a decade of declining real estate growth and job loss in the mortgage underwriting and closing employment sectors, lenders are facing more demand for new loans for moderately priced homes than they have capacity to fulfill.     Just how much lending capacity was lost throughout the past five years of the recession:  “Between 2005 – 2009, employment in the real estate credit sector fell by 45 percent, while mortgage applications fell 75 percent. Since then however, mortgage applications have “almost doubled”, according to Diggle, while job growth in the real estate credit sector has only increased by seven percent.”  Again, this presents a good news – bad news scenario:   Demand has almost doubled since the bottom of the real estate recession, but the total drop off in demand was from top to bottom was 75%!    Capacity has increased by 7% since the bottom of the recession, but the total loss from top to bottom was 45%.   Can lenders be blamed if they “triage” their pipelines to favor higher profit loans or stronger credit applicants?   Can this also help explain the lack of enthusiasm and allocation of man power to government  promoted modification and refinance programs?
The bottom line is well summarized by Paul Diggle at Capital Economics:  “the housing recovery still has some hurdles it needs to clear.   .  .   .   Capacity constraints in lenders’ mortgage departments are one of the  . . . remaining bottlenecks in the housing recovery.”   Job insecurity, over-regulation, and lending capacity are the factors stifling the winds of real estate recovery.

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