© W.Scott – Fotolia.com

The problem becomes evident with a quick look at the stats – last December saw the number of properties listed for sale nationwide decrease by 8.5% from the month before to just 1.82 million in total, which is the lowest we have seen for several years, reports Investor’s Business Daily. As of today, existing inventories are 22% lower than they were just one year ago, with homes in the ‘low-priced’ category thought to be even scarcer than that.

Walter Molony, spokesperson for the National Association of Realtors, warns that the market is now entering an uncertain phase:

“We’re not sure what’s going to happen this spring, but it’s going to be very interesting to see what happens in the next couple of months.”

The big worry is that sustained price increases without any new inventory will ultimately hurt the real estate recovery. Homes could quickly become unaffordable as more properties are subject to multiple bidders, reversing the impact of current low interest rates we’re seeing now.

According to Molony, one of the biggest reasons for a lack of inventory is down to the restrictive lending standards of banks, which limits both buyers and new home construction. Loosening these standards would result in inventories going back up, but the problem is that banks refuse to entertain the idea.

Brian Moynihan, CEO of the Bank of America, said at a recent forum that the tight standards were necessary to avoid a housing bubble from reappearing:

“Credit has been restricted for a while, but … it had to be restricted because this is what helped open the problem up.”

Another reason why inventories are falling is because there are still legions of homeowners that remain underwater on their homes. For anyone in this situation, it simply isn’t worth selling as they would walk away from the sale with debt.

The Investor’s Business Daily says that things will pick up eventually when people who purchased their homes at the peak of the last cycle deem it profitable to sell up, although this won’t happen until 2014 at the earliest.

Image © lassedesignen – Fotolia.com

The Dow Jones Industrial saw a frenetic day’s trading, ending 99.22 points higher at 13,979.30 on Tuesday, wiping out most of the substantial losses it saw on the previous day’s trading. Elsewhere, other markets also saw substantial gains, with the Standard & Poor’s 500 rising by 15.59 points to 1,511.29, and the NASDAQ composite gaining by 40.41 points to 3,171.58.

The advance came about following the release of new data by CoreLogic, which shows that home prices in the US have risen at their fastest pace for more than six years. According to the data, home prices jumped by an impressive 8.3%, giving investor confidence a much-needed lift. Meanwhile European confidence also helped to boost US markets, with manufacturing and service businesses their rising to a ten-month high in January.

Brad Reynolds, chief investment officer at LJPR Inc, told the Press Association that the big question for investors now was whether or not yesterday’s rally would have legs and continue for a second day.

“The market is extremely skittish right now. That’s why we’re seeing such big moves,” said Reynolds.

It’s no surprise that housing would help to give markets such a big lift, when one considers the kind of positive effects a healthy real estate industry would have on the overall economy. Given that the US economy surprisingly contracted last year, many analysts are looking to a burgeoning real estate recover to drag the US back onto the right track.

The most obvious benefit from a sustained housing recovery would be the creation of new jobs in the construction industry, reports the NPR. 28,000 new jobs were added in last January alone, while 296,000 jobs have been created in the industry since January 2011. Should the housing market ever be able to return to a ‘normal’ state, experts predict that it could generate some 2.9 million jobs throughout the country, the effects of which would reverberate throughout the greater economy.

© David Gn – Fotolia.com

The Fed is providing 45 billion dollars per month in “hot air” liquidity for the housing market. Billions of these dollars are being loaned out to newly formed capital / investment entities whose goal is to buy up as many foreclosures as possible, along with any other desirable properties that may be available.

A number of industry professionals are telling me that prices are beginning to rise significantly and the inventory of available foreclosures is dwindling. This is creating a demand for housing that is resulting in a tighter supply and driving selling prices upward like a balloon. But when the hot air runs out, the balloon falls back to the ground.

These buyers are not end users. A housing market driven by investment activity could prove to be much more volatile than a housing market driven by more traditional owner occupant activity.

Some of these businesses, formed as “early” as 2011, have already gone from start-up investing operations to publicly held companies. There is no mistaking what is happening here. Wall Street sees an unprecedented opportunity to profit from the housing market once again.

The Fed wants to keep interest rates low and “create jobs” by liquefying the housing market just as they did in the early 2000′s. The banks hope that all of this activity will result in improved balance sheets via profitable loans and improving housing prices. And those who made money during the housing boom see another opportunity to profit from the housing bust and the resulting foreclosures.

Indeed one of the interesting aspects of real estate is it’s ability to generate cash flows in a variety of ways. Shelter is a high demand item, desired by virtually everyone in the world. It’s high dollar value, perhaps $9 TRILLION at this point, makes the US housing market one of the wealthiest sectors on earth, even after the housing bust.

Stock market savvy investment companies are using “Bernanke Bucks” to buy tens of thousands of foreclosures which they plan to rent or sell, while turning this cash flow into a profit bonanza via a stock IPO. There are a handful of these companies which are already public or nearly public, making much more off of the stock sale than they would as ordinary real estate investors.

Could this be the beginning of a new investment bubble? I think the answer is “yes”. Fundamentally we are talking about the power of none other than the Federal Reserve, the Wall Street banks, and investment companies created by guys with Wall Street connections. They have the ability to monetize the cash flows into the stock market. This promises to be the biggest real estate investment innovation since derivatives were invented.

This is the same methodology that gave us the original housing bubble. Wall Street has learned a lot about manipulating the housing market. And with the development of stock market oriented real estate investment companies, they are developing the ability to “manufacture” a housing recovery.

I expect you’ll hear lots of news in 2013 about how the housing market is improving, and prices are rising. As long as the Fed remains willing to keep the bucks flowing, we’re going to see more and more foreclosed properties flowing to large scale investing operations. This is a fundamental transformation in the housing market that is unprecedented.

It’s going to take a few more years for this entire scenario to unfold, but at some point, it’s safe to say that prices and ownership costs may reach unsupportable levels once again, leading to another bust. Only time will tell how big this bubble will become and how much hot air will be necessary to inflate it.
———————————————————————
Donna S. Robinson is a real estate investor, author and investing coach located in Atlanta, GA. Follow her on twitter at donnaconsults, Facebook.com/RealtyBizConsulting and watch her videos on youtube. Her latest book, Basics of Real Estate Investing, is now available for Kindle on Amazon.com

Image by Colonel Flick/WilliamBanzai7 via flickr.com

Well yes, if you are a banker or a government, holding trillions in toxic mortgages, in the midst of what is still a very depressed housing market, deflation is a problem. They need those toxic mortgages to go back up in value. As such, Bernanke has taken it upon himself to buoy the housing market by buying $45 billion dollars worth of mortgage backed securities each month from now until–well, until the housing bubble has been re-inflated to a satisfactory degree.

And the federal government, strapped by massive budget deficits costing almost one-half TRILLION dollars in interest payments, (even with interest rates near zero), for fiscal 2012, are getting desperate for more and more cash. The interest payments on federal borrowing are so high, they are now the 4th largest expenditure that the government has. If interest rates were to rise, even only slightly, the government would be faced with a choice between paying their creditors or paying for defense, food stamps and social security. Indeed it’s already been that way for a number of years now, so they have devised clever ways of manipulating their debts. But the fact is that their manipulating and maneuvering is leaving you with less and less buying power as a consequence.

Anyone who has been shopping for groceries lately has noticed that those prices have been rising much faster than home values. QE1, 2,3, and 4 may have kept interest rates from rising, but it did nothing to help reduce food prices. Those of you on a budget are well aware that $100 does not buy nearly as much at the grocery store as it did 10 years ago. And to boot, many product manufacturers are helping maintain the “game” by reducing the sizes of food packaging as a way to keep the price more or less the same. So even where prices seem to be holding steady, chances are the amount of actual contents you are purchasing is getting smaller.

Take coffee as a prime example. 30 years ago, coffee sold for less than $2 per pound, and a package of coffee actually weighed 1 full pound. (16 oz) But today, coffee, (depending on the brand) has gone up to about $5 for that same package of coffee. Except that now, the typical pack of coffee only weighs 11 ounces. It looks about the same sitting there on the shelf, but the contents have been gradually reduced over time to keep the price “low”.

Sugar has been repackaged from 5 pounds to 4 pounds, to keep the price from obviously going up. Ditto with cereals, and thousands of other grocery items which can be reduced in quantity, without actually reducing the packaging size. So it looks like you are getting the same amount, but there is actually less and less content inside the package.

Prices for a dozen eggs on the other hand, have gone up about 80% in my area over the past 3 years or so. It’s more difficult to sell a dozen eggs if there are only 10 or 11 eggs actually in the container. So, the price had to rise, to keep pace with the falling value of a dollar. Milk would already be near $7 a gallon if not for subsidies paid to dairy farmers. If those subsidies were to be discontinued, we’d see drastic increases for basic food products in a matter of days.

Incomes on the other hand, are falling across the board, even for those with advanced college degrees, as globalization moves companies to look for cheap labor in other countries. So incomes are not keeping pace in America, with the rising costs of living. To hide this fact, the government has conveniently changed the way that the Consumer Price Index is calculated, in order to make it seem as if prices are not rising. And this game has been going on now for over 30 years.

Ultimately for the general public, the cost of living is rising despite what the politicians claim. In fact, one of the big points of argument over the so called “fiscal cliff” was about whether to use a handy smoke and mirrors tool called “chained CPI” to continue the “no inflation” charade. The idea with this one is to use a calculation of the cost of living that will be lower than reality, so that the government can reduce it’s social security payments to seniors. Check this article on shadowstats.com for a detailed analysis of how the manipulation is accomplished.

Keeping interest rates at ridiculously low levels has not done much to help bolster the housing market, but it has reduced the amount of interest that the government has to pay each year on it’s debts. If interest rates go up just a few percentage points, those interest payments would balloon to unsustainable levels. Calculating the inflation rate to keep it artificially low means that the government pays less to social security recipients.

But the bottom line is that they are “robbing Peter to pay Paul” as the saying goes. Unfortunately you are Peter, not Paul. Your buying power is being reduced, as the real costs of living continue to escalate. I believe this is already impacting the housing market to the extent that you cannot expect home prices or sales figures to rise substantially or “recover” to any respectable level if people have to spend more and more of their income just to eat and put gas in the car.

The problem is that inflation, whether it is 2% as Bernanke claims or higher, has a CUMULATIVE effect on your income. In other words, the 2% inflation from last year stays and another 2% gets added to that the following year. Over ten years that low 2% inflation rate that Bernanke loves to quote will become 20%. Since 1980, the official inflation rate has compounded to a total of 179.4% according to inflationcalculator.com. and this is based on “official” inflation numbers.

This means that if you earned $300 per week in 1980, you would need to earn $838.18 per week today, just to keep pace with the official inflation rate. This is why playing the lottery is now one of today’s hottest retirement plans. It’s why people are desperate to “get rich” and why everyone needs to constantly increase their income. It’s also why nearly 50 million people are now on food stamps. Fewer people today are able to even support themselves without some type of government assistance.

Unfortunately the housing market will have to begin “downsizing” itself just like they have done with coffee, sugar, and other commodities. Eventually we’ll be back to building and selling those 1000 square foot, 2 bedroom houses that were so common in the 1950′s. Only instead of costing $5000 they will sell for $42,320.04.

The government is chasing it’s proverbial tail. Monetary policies create more inflation, and that inflation leads to more people on the government dole, and fewer people who can afford to buy and pay for a home. The fiscal cliff is just a little preview of what awaits our economy, as we continue to do things that will eventually lead to the edge of a fiscal abyss.

Housing issues for 2013 © art1art – Fotolia.com

Nick Timiraos’ recent column in the Wall Street Journal offered up his own expert opinion on what we can expect to see in 2013, identifying the five most important housing issues that will affect consumers and real estate professionals alike:

1. Housing Prices Set To Inch Upwards

The WSJ article warns that much will depend on the success of the economy at large, but should this improve and the unemployment level decrease, many of the housing market’s biggest problems – such as foreclosures, the large number of homeowners underwater, and tough credit standards – will likely ease somewhat, paving the way for home prices to inch upwards even more.

2. Inventories to Grow

In order to meet the level of demand, Timiraos predicts that home builders will take production up another notch, whilst more homeowners may decide that the time is right to sell as housing prices continue their upward trend.

3. Rising Demand as Home Prices Rise

With home prices set to continue rising throughout 2013, the WSJ predicts that buyers will show increased urgency and make more efforts to close on deals sooner.

4. Lending Standards Remain Tight

Unfortunately for first time buyers, it’s unlikely that will see credit becoming any more accessible in the year ahead. The WSJ believes that new credit regulations will likely lock banks into their current “defensive posture” when it comes to lending – if anything, standards could become even more strict.

5. Shadow Inventory to Shrink

But only a little. The WSJ suggests that banks may look to speed up the process of foreclosure in those markets that already have large backlogs, but even so they are likely to remain cautious so that markets do not become inundated again.

We should note that all of this is nothing more than speculation of course, and while most economists are tentatively predicting an improvement in the economy overall, the housing market could quickly take a turn for the worse if these predictions don’t pan out. The WSJ reminds us that housing is still very fragile, and much depends on whether or not lawmakers can agree on a compromise to avert the “fiscal cliff”.

Prices for condos and townhomes in October 2012 recorded an 18.6% increase compare to October 2011. On a month to month basis (September-October 2012) condos and townhouses recorded an increase of 2.5%.

Despite higher prices, sales are also up in October 2012 compared to October 2011: 34 percent for single family homes (total sold listings 2,071, compared to 1,546); and 18 percent for condos and townhomes (882 compared to 746).

“There’s really only positive, encouraging news in these new numbers,” SDAR Board President Donna Sanfilippo said in an official press release. “You can’t help but feel good about what we’re seeing in the San Diego County real estate market. Homes are moving and prices are increasing. If our recent First-Time Home Buyer Clinic is any indication, which turned into a standing-room only event, San Diego is becoming a real estate town again.”

SDAR’s housing statistics (*.pdf), based on the Multiple Listing Service of Sandicor, Inc., give a more indepth understanding of the trends, complete with total sales volume on a year-to-year basis in San Diego, as well as sold listings by property type, neighborhoods and so on.

Image courtesy SurvivalWoman via flickr.com

Today, some 30 years later, current Federal Reserve Chairman Ben Bernanke, is telling us that inflation is not the problem, that “deflation” is instead the real problem, and as a result, Bernanke has been making aggressive attempts to force interest rates down by injecting trillions of dollars into the U.S. economy, in hopes that those low interest rates would spur the housing market into recovery. But so far, most agree, this has not worked, as home prices are essentially flat, and home sales have yet to improve to any degree that could be called a legitimate recovery.

But it is having a very real impact in another area that has been conveniently omitted from the Consumer Price Index – food and fuel. In Bernanke’s world, these items can be removed from the data set, so that the inflation numbers can be held to whatever level is desired to achieve political or economic ends.

But in the real world, the one that 99% of regular Americans live and work in, the inflation problem is getting worse, reducing the amount of funds consumers have to spend on housing. Prices for food and gasoline have reached levels never before seen in the U.S. Rising food prices are fast becoming a problem for average consumers – you know, the same folks who buy or rent houses. These people have to live with reality, they can’t remove food and fuel from their data set.

Recently, California made news as gas prices hit $5.00 a gallon for the first time ever. Thanks to a record drought in the farm belt, corn prices are up 60% just since June of this year. All food commodities are up significantly. And the only real “tool” the Fed can utilize to stop prices from rising too much would be to raise interest rates. And this means mortgage costs would also rise, making homes less affordable.

According to a detailed regression analysis of the history of inflation correlated to interest rates and housing prices, published on the ZeroHedge.com blog in 2010, inflation simply does not generate significant increases in housing prices.

This data shows that there is a strong correlation between rising interest rates, and reductions in home prices. It’s not obvious to the casual observer or the typical buy and hold investor, because the analysis discovered that there is a 6 month or longer lag time. It takes about 6 months for an increase in mortgage interest rates to begin to translate into a reduction in home prices. Conversely, in the historical past, falling interest rates stimulated home sales, and the resulting increase in demand led to rising home prices when interest rates were falling. But not this time. The near-zero interest rates have done nothing to stimulate home sales.

But the money pumping is beginning to have a significant impact on consumer prices. Grocery stores are now filled with packaged items in which significant reductions of the net contents have been used to mask commodity prices that are rising rapidly. Fuel prices have doubled in just the past three and one-half years. When you combine those facts into the equation, Bernanke is clearly caught between a “rock” of deflated mortgage backed securities, (which he is trying desperately to re-inflate), and a “hard place” of food and fuel prices that have begun a run-away inflationary spiral.

Also lurking in the shadows for housing is the continuation of high unemployment, still officially near 8%, while non-government analysts at Shadow Government Statistics place the real unemployment rate well above 20%.

I believe that the lack of real demand, from real-end-user buyers is being masked in the housing sales data, because sales data does not differentiate between end-user buyers and investors. Yes sales are up, and demand is up slightly, relative to the bottom, but it’s not the general public doing much of this buying. Instead, big investment companies are making an unprecedented push into the housing market, in anticipation of rising rental rates that may not materialize in many markets.

In short, we’ve been lying to ourselves for so long about economic data that the government and the housing industry don’t seem to realize the economic headwinds that consumers are facing.

This being said, I believe the best approach is a conservative one. All home buyers as well as real estate investors should continue to buy at the lowest possible prices, and not project any benefits from property appreciation or significant rental increases for at least the next 5 years.

An old time rental property owner, now in his 80′s told me the other day that “the rental property business just isn’t what it used to be when I was your age.” He still has rental properties that have been paid off for many years, but their tenants are struggling more than ever to pay a rent rate that has not risen in 5 or more years, while taxes and insurance costs continue to escalate.

It’s important to be realistic about the fact that rent rates can’t rise much in the markets that are not supported by strong job growth sectors. If you are in metro Washington DC, demand will remain strong because the government complex grows ever larger by the day, and is a major job growth leader nationally. (at least until Uncle Sam runs out of money) But if your properties are in metro Atlanta, GA, Phoenix, AZ, Las Vegas, NV, central Florida, Riverside California, or the “rust belt”, you should be very realistic about flat rent rates, systemic unemployment and rising consumer prices.

Personally, as a real estate investor, I’d love to see a big housing recovery, complete with rising property prices, rising employment, rising incomes and a new housing boom, but unfortunately this is 2012, not 1993. The only thing rising right now is the cost of living. As investors, it’s in our best interest to be realistic about the financial challenges that are still ahead for would-be home buyers and rent paying tenants.
——————————————————————————————————————————-
Donna S. Robinson is an investor, author and residential market analyst located in Atlanta, GA. Follow her on twitter at donnaconsults and read her blog on her website at www.RealtyBizConsulting.com

Are things really improving, or do we still have our heads stuck in the sand?

This is hardly an improving housing market. But for years now we’ve been living through the worst housing market in the history of the U.S. in terms of overall value lost, so bad news that is less bad is considered an improvement. We’re all ready for some good news. Even if it’s just that the bad news is not quite as bad as it has been previously.

It’s been pretty good news for Phoenix, Arizona, which posted the best annual gain in prices, which have risen an average of 8.6% since April of last year. Other cities that are a bit better since last year include:

Miami, FL – a city with excellent oceanside location and a temperate climate, is a market that is finally looking better after years of struggling with over-supply. Up 3.2% since 2011, Miami has recently begun to rebound as buyers from out of state and out of the country have decided that prices are finally low enough to justify buying.

It’s about time. Miami and most of Florida have been in a severe downturn longer than much of the nation. After 4 major hurricanes in one season, back in 2004, Florida residents decided to pack up and head for other states that were not so hurricane prone. Between that and the fact that Florida was drastically over-built at the time, they began having major problems years ahead of the national collapse in 2008.

Dallas, TX is another metro area showing small but steady gains. This is likely due to the strong employment picture in Texas, and especially the Dallas area. Texas did not experience the big housing bubble the way that other southern states did. This was partly, (in my opinion), because Texas real estate law made it much more difficult to pursue some of the “shenanigans” that went on in the bubble states. So the strong showing here is not a surprise, and in fact, is nothing new.

Atlanta, GA continues it’s “reign” at the “top of the bottom” in terms of lost property value. Metro Atlanta was the only MSA in the entire 10 or 20 city composite to post yet another double-digit loss, and is down 17% since April of 2011.
Overall Atlanta is down some 40% from it’s peak highs.

Atlanta’s big problems today stem from it’s “advantage” during the housing boom. Lots of land and room to grow. Atlanta has the largest metropolitan area of any city in the U.S. and perhaps even the world. With a total of 13 counties, there is a lot of room to build here, and that is just what the builders did. There are literally hundreds, if not thousands of subdivisions around metro Atlanta with less than half of the homes that were intended to be built. Some subdivisions have only 4 or 5 occupied homes, surrounded by a sea of hundreds of lots that are still waiting for homes.

Georgia had no idea how dependent the state’s economy was on residential construction and property taxes. When home building ground to a stop, so did much of the state’s economy. Job losses and high unemployment continue to plague metro Atlanta. Foreclosures in the far flung metro counties are still running near record highs in the eastern, southern and western quadrants. The northern sector has the best of the technology and corporate employment. Though the losses have been big there too, they’ve rebounded faster than the other areas. In Atlanta it’s all about the employment or lack of it. Some areas are great and some are not good at all.

Overall, both composite indexes still showed an average loss, though the loss is getting smaller. Let’s hope this is a sign of improvement. But we already know that April 2012 job numbers looked like employment was improving, only to fall way back in May. A turn that was not expected. I hope that the downward trend in employment will not translate into more foreclosures, but we’ll have to wait another month to see. Right now, the idea of an “improving” housing market definitely depends on what your definition of “improvement” is.
—————————————————————————————
Donna S. Robinson is a 17 year veteran of the real estate industry, and a residential housing market analyst. She is a real estate investor as well as holding a real estate license. Her newsletter and blog are available at her website: Realty Biz Consulting.

Image credit © Wolfgang Cibura – Fotolia.com

Trends that are set to stay © Paul Fleet - Fotolia.com

1. Distressed or foreclosed properties will continue in high numbers, keeping the supply of vacant homes at levels that will exceed end user demand in many local markets.

Areas with an over-supply of existing homes will continue to see prices flat or eroding, until the supply-demand ratio comes back into balance. In some parts of Florida, California, Georgia, Nevada, and Arizona, to name a few, it will take years for this ratio to balance out.

Any market seeing increasing foreclosures in 2012 will experience this imbalance in the future, to some extent. The larger the supply relative to the existing demand, the lower the prices will tend to be.

2. Conversion Of Single Family Homes To Rentals

Home ownership has been shrinking. The housing market is undergoing a fundamental change to a much higher percentage of single family rentals. Rent rates will only go up in those areas that have a tight supply relative to local demand. This will be mostly near major employment centers in bigger cities.

That being said, we’ll see a much higher percentage of tenants in suburban “bedroom communities”. Those neighborhoods tend to have higher foreclosure rates, and are located farther from the best paying employment centers.

The Worst locations are neighborhoods near “dying” employment centers. A prime example is Detroit, Michigan. As the auto industry has lagged, and employment has fallen in a number of related sectors, jobs in the “rust belt” are still dwindling. “Industrial age” population centers are shrinking and this trend will continue have a negative impact locally.

For residential real estate brokers, the biggest growth opportunity at present is in property management. Some brokers have opened new property management companies to accomodate the growing demand caused by a local transition from owners to tenants.

3. A New Market Variable - The development of “Big Box” rental property owners in the single family market

Wall Street has entered the housing market in an attempt to buy up bulk reo packages of single family residences being offered by Fannie Mae or other entities holding a large inventory of foreclosed properties.

This has never been done before. The impact may be positive in the short term for the selling entity, but I believe that it is most likely that this development will have a negative impact locally. The increased supply could force rental rates lower. Mom and pop investors may have difficulty cash flowing against such competition.

Managing a Single Family Rental project of this type and scale are unprecedented.
For existing homeowners, this event could lead to a higher percentage of tenants in many neighborhoods that used to be 90 to 100% owner occupied.

The attempt to cash flow single family rental properties in unprecedented numbers, combined with high unemployment and lower incomes among the tenant population is leading to

4. Significant growth in the use of government subsidized housing programs commonly known as “Section 8″

Today there are fewer people who can afford to pay full “market rent”, which is usually higher than a mortgage would be on the same property. And Government Subsidized housing has a reputation for paying above market rent rates for a variety of reasons.

I fully expect that “Big Box” landlords will want to utilize “section 8″ or similar programs, as this is a common strategy for boosting rental income to “above market” levels, thereby increasing positive cash flow. However, in cities where the number of available properties exceeds the local demand for subsidized rent, houses can go begging for tenants. This could upset the “Big Box” cash flow projections. It will be interesting to see how this plays out over the next few years.

5. Government Domination of The Mortgage Market

Taxpayer “ownership” of the secondary mortgage market, in order to continue funding mortgages in a market that has lost most of it’s private investment capital. The financial burdens are already significant for both the taxpayers and the buyers who are using these loans. We’re stuck in a vicious cycle of more government programs and guarantees, with much less private sector involvement than ever before in the history of the secondary mortgage market.

6. Higher unemployment and lower wages

Productivity is at record high levels, but new technology has limited the creation of new jobs for humans. Globalization and internet commerce have made Americans compete with workers in Pakistan or Indonesia, resulting in much lower incomes. This will have a direct impact on home prices, rental rates, and government intervention in the housing market.

These are not short term events, they are here to stay on some level. This is part of the new “normal” where today’s housing market is concerned.***
—————————————————————————————-
Donna S. Robinson is a 16 year veteran of the real estate industry and a residential market analyst. She also has an extensive background in residential real estate investing. Get her free newsletter on her website at www.RealtyBizConsulting.com

London real estate prices set to rise © fazon - Fotolia.com

Cluttons is expecting growth rates for prime real estate property in London to remain well above the national average, as housing prices grew by around 9% last year and have continued to increase this year. This is largely due to a lack of supply as more homeowners are choosing to take a longer term view. There has also been an increase in the number of Greek and Italian home buyers seeking the security provided by London property. The lack of supply is pushing housing prices up by as much as 10% over the asking prices, and is even affecting properties in the secondary market. Until recently these properties had languished on the market for long periods of time, but are now achieving prices of up to 5% more than the asking price.

In spite of the optimistic outlook for London property, Cluttons residential property forecasts for the first quarter of 2012 paints a mixed picture for the rest of the country. Recent economic news has been more optimistic due to an increase in retail sales and business output, while the government balance of payments surplus  currently has a four-year high. These factors have helped improve business and consumer confidence, and inflation is also falling. GDP is expected to increase by 0.7% this year, with much of the growth expected to be seen during the latter half, but the economy is still fragile due to continuing difficulties in Europe.

In recent years the UK housing market has been protected by a lack of supply, in spite of weak demand and low consumer confidence. It’s also been helped by historically low base mortgage rates which have remained at 0.5% for three years. However unemployment is predicted to reach 9.4% this year, and could have the knock-on effect of suppressing overall housing sales and increasing the number of distress sales.

This is one of the factors on which Cluttons is basing its predictions of price falls during this year. From next year onwards, it is predicting annual growth rates of 2% until 2016, but does point out there will be significant regional variations, with larger price gains expected to be seen in the south-east.