Love's Real Stories

I visited a self-proclaimed real estate expert to get the real story on the market. His quotes appear in magazines, newspapers and the blogosphere.

“I understand you’re quite the prognosticator,” I said.

“I simply assess the facts and data available to anyone,” he said. “I examine the information subjectively, thereby allowing me to analyze trends and market directions which might be overlooked or misunderstood by others. However, you are welcome to refer to my work as prognostication.”

“Thank you,” I said. “So what’s the real story on the real estate market?”

He inhaled deeply, and prognosticated:

He told me California home prices have surged by double-digits, and some of his “constituents” are voicing concerns about the market entering into another period of “uncontrolled upward-trending” real estate prices.

“Based upon my surveys and research, conditions of price movement will continue upward, but in a more modest fashion,” he said.

He said the housing market and loan financing conditions are undoubtedly healthier than in the mid- 2000’s, before the housing market deteriorated. Loan financing requirements are “inherently more discriminating” now. Home buyers are showing up with bigger down-payments than when the market was at its peak. In general, fewer buyers are able to get a loan with zero down-payment.

“Cash buyers are involved in the market in great abundance,” he said. He expects that trend to continue, which is bad news for buyers with loan financing, because the cash buyers tend to prevail in multipleoffer bidding wars, which are commonplace in today’s market.

“I am in alliance with my respected colleagues who predict the overall economy to continue to improve slowly but steadily,” he said.

I noticed on the bookshelf behind him a crystal ball and a Magic Eight-Ball; and on his wall a dart-board with Yes, No, and Maybe printed on it rather than numbers.

“Novelty gifts from my more jocular associates,” he said.

I asked if he thought interest rates would go over six percent in the next twelve months.

“Ah,” he said, “the ultimate question.”

He reached behind to his bookshelf and handed me the Magic Eight-Ball. I turned it over and saw words floating in the inky interior:

“Reply hazy. Try again.”

“Confidence among U.S. homebuilders rose this month to its highest level in six and a half years – driven by strong demand for newly built homes and growing optimism that the housing recovery will strengthen next year.”

The confidence and optimism cited above comes from the National Association of Home Builders (NAHB). The question came up: “How is such confidence and optimism measured, anyway?” and “Compared to what?”

It turns out there is a measurement called the “NAHB Builder Sentiment Index.” The NAHB has been conducting a survey of builders and contractors monthly for 25 years, asking questions to gauge builders’ perceptions of house construction and sales in the next six months as “good,” “fair,” or “poor.” They are also asked to rate buyer traffic as “low to very low,” “average,” or “high to very high.”

Scores are then used to calculate the index, where any number over 50 indicates more builders view conditions as good than poor. The index published this week by the NAHB puts the number at 46, up from 41 last month. That’s the highest reading since May 2006, “Just before the housing bubble burst.” The index has been on the rise for the last seven months in a row.

In October 2011, the index was at 17. The all-time low was January 2008, at 8.

Forty-six does sound good compared to 17 or 8, but it still means that less than half are seeing rosy conditions ahead.

True, says NAHB Chief economist David Crowe, “Our confidence gauge has yet to breach the 50 mark, and we have certainly made substantial progress since this time last year, when the index was 17,” he said, “but difficult appraisals and tight lending conditions for builders and buyers remain limiting factors for the burgeoning housing recovery, along with a shortage of buildable lots.

But the good news keeps coming, says NAHB Chairman Barry Rutenberg. “Builders are reporting increasing demand for new homes, as inventories of foreclosed and distressed properties begin to shrink in markets across the country,” he said. “In view of the tightening supply and other improving conditions, many buyers who were on the fence are now motivated to move forward with a purchase in order to take advantage of today’s favorable prices and interest rates.”

Confidence is a good thing; optimism, too- but jobs are better.