Third Quarter Market Evaluation

The Valley wide statistics that were recently released by ASU Realty Studies indicate that there was little significant change in the marketplace in September as compared to the traditionally slower summer months and what change there was, was not particularly positive.

Foreclosures have continued to dominate the marketplace and, in fact, actually accounted for 46% of the sales valley wide last month. Although the picture in Scottsdale was somewhat better at 36% that differential wasn’t large enough to impact the most confounding aspect of the market -- the fact that values are still eroding.

The folks at ASU believe that the biggest immediate issue is the uncertainty in the market as a result of the evolving problems within the foreclosure process which could potentially impact moratoriums, availability of title insurance, the willingness of people to purchase foreclosed properties and the public perception and acceptance of the entire home financing process.

Personally, I think that’s like looking at an elephant and describing it as made of Ivory. It’s unquestionably part of the problem but, although it’s not a positive development, its impact should really be transitory and relatively minor. The real problem is still a combination of economic fundamentals and lack of consumer confidence.  

A strong move-up market is the key to any recovery and we simply won’t see that until there’s more optimism about our economic future and the first step to effecting that change is for the political parties to stop bludgeoning each other to death with gloom and doom assertions about debt, deficits and the economy. It may be an effective path toward gaining or retaining power but it’s forcing the public deeper into their financial foxholes and dramatically delaying the possibility of a recovery.

The truth is that any changes that occur after the election will likely be relatively minor. Sadly enough, our problems won’t be dramatically improved if we manage to trim a 100 billion or so here or there from the budget or elect to maintain our current tax levels.  However, the simple lowering of the political thermostat may actually offer some degree of relief.

Quite frankly, in past recessions when the political outcry was considerably more restrained the availability of mortgage rates as low as those we have now and the opportunity to acquire homes at fire sale levels would have been enough to jump start the economy. It’s confidence in the future that we are lacking. And that extends to all facets of our financial environment.

I know that explanations and observations like this won’t please any technically oriented readers but markets are as much about “crowd psychology” as they are about yield curves and tax breaks.

Let’s hope that we can lower that thermostat quickly enough after the election to improve the retail climate for the holiday season.

Real Estate Related Myths

We live in the era of the internet and the 24 hour news cycle and the combination of the two can either be an amazing blessing or a genuine cause of concern. On one hand, we certainly get information quickly --- on the other hand the actual source of that information is getting harder to determine and the quality of the reporting is becoming more and more questionable.

It’s no longer possible to assume that what you see in “print” is accurate and honest. It’s unfortunate but articles from secondary sources might very well contain carefully researched and thoroughly vetted information but they could just as easily contain conjecture or deliberate misinformation that’s being disseminated for reasons completely unrelated to the subject at hand. 

At the moment, there are two major myths involving the real estate industry that the National Association of Realtors is working hard to refute.

The first claims that the “Cap & Trade” energy bill that’s working its way through Congress will require home sellers to obtain an energy audit and retrofit their properties before they can sell their home. The reality is that the bill only requires new construction to be “energy-labeled” and actually prohibits states from requiring new ratings when a house is resold.

The second myth claims that the new health care bill contains a transfer tax on home sales. The truth is that the bill does impose a 3.8 percent “Medicare tax” on some high-income households with investment income. However, the tax, which goes into effect in 2013, doesn’t even specifically apply to real estate.

It’s a tax on “investment income” that will only be applicable to households with an adjusted gross income of more than $250,000 ($200,000 for individuals). Moreover, courtesy of the capital gains exclusion rule, the tax would only apply to real estate if the net proceeds of a home sale exceeded the exclusion amount of $500,000 ($250,000 for individuals). Even then, it would only apply to the portion that exceeded those levels. Sadly, that’s a threshold that few people need worry about in our current market.

These myths have obviously been promulgated by those specifically opposed to either the energy legislation or the health care bill but the reason that National Association of Realtors has been working hard to refute their claims is because the strategy only adds to the uncertainty and confusion about the marketplace and can potentially retard an already wobbly housing recovery.