The 50 Yard Dash
By Jim Macklin
Secure Document Research
Back in high school, we all had to run the short race that was a flat out sprint. More injuries occur in the shorter races than do in the races of duration for one simple reason…it places a higher impact on all muscles in the shortest amount of time, and with sometimes career ending results.
The recent run-up in housing prices, spurned by dog-fights at the auctions between private home buyers and investor money looking for another “bargain”, is a red herring. REO properties and direct sales in the short sale and traditional MLS (Multiple Listing Service) listings are now seeing one of the first signs of a healthier economy. Or so says the Real Estate industry. The numbers do not lie, however, there is a lot of activity to be sure, as compared to even one year ago, but this is a short race, so tape up and stretch.
The Case Shiller Index, coupled with Core Logic numbers were recently compared in a study that confirms some sobering statistical data. When comparing the average sale price of housing in 20 major metropolitan areas, including four in California, the sales prices are at what is termed the “20 year run-up” high. This information is calculated using house prices, interest rates, job statistics and household income. Right now, the numbers are beginning to out perform the average person’s ability to pay a long-term debt obligation.
While a “bubble” is not being called yet, if this pace continues, we will most certainly see the same set of players profiting from house sales by selling AAA rated mortgage bonds based on home pricing that does not hold water. The temporary increase in lending rates, I predict, is exactly that…temporary. The country will not tolerate higher lending rates. Also consider that there does remain a significant number of shadow inventory properties, which the industry is denying adamantly.
Foreclosure rates are also expected to spike again this year due to imminent defaults that will mostly all wind up on the loan servicer’s cutting room floor. Once again, the game is controlled by the geniuses at Wall St. Prediction: Bernanke will make announcement within 45-60 days confirming that the rates will drop back down to the lows that have been established to prevent inflation. House prices will falter and drop again due to an instability in the jobs market, which will not strengthen by a false sense of “you’d better buy now before it goes up again” mentality. Sorry guys, we bit once, we will not be bitten again.
So, as I said, tape up, stretch well, and for the love of Pete, do not get yourself talked into a race that you will not even get out of blocks…Wall St. controls the starting gun and they get a head-start because it’s their race…so don’t run it. Take your time and the race will come to you.