This is why Hindsight is Important (in Real Estate)

It’s easy to use hindsight as a blunt force, but it’s important to note that we’re not going to know whether today’s real estate data reflects a/the sign of market recovery or a positive blip on the chart until we have the benefit of hindsight.

My advice: Be patient, ask questions, be confident, seek competent representation.

From the Speaking of Real Estate blog:

Harvard University’s Joint Center for Housing Studies released its annual State of the Nation’s Housing report for 2012 and it very closely tracks comments made by NAR Chief Economist Lawrence Yun earlier this week at a CRE conference on what’s holding back the housing recovery.

The Harvard report, which always does a good job laying out in plain language what’s happening with the market, points to the increasingly strong market fundamentals and says home sales really could see serious improvement this year.

Sounds pretty ok, right?

And then I see @NickTimiraos from the WSJ tweet:

Harvard JCHS 2006: Fortunately, most homeowners have sizable equity stakes even if they can’t pay their mortgage

The Harvard report from 2006 says (in part):

Although borrowers with interest-only loans will see their housing outlays jump when their principal payments come due, these increases are still several years off. Borrowers thus have time for their incomes to catch up, for interest rates to fall, or to either refinance or move.

Fortunately, most homeowners have sizable equity stakes to protect them from selling at a loss even if they find themselves unable to make their mortgage payments. As measured in 2004—before the latest house price surge—only three percent of owners had equity of less than five percent, and fully 87 percent had a cushion of at least 20 percent.


The greatest threat to housing markets is a precipitous drop in house prices. Fortunately, sharp price declines of five percent or more seldom occur in the absence of severe overbuilding, dramatic employment losses, or a combination of the two (Figure 2). The fact that these conditions did not exist and that interest rates were so low explains why the housing boom was able to continue without interruption when the recession hit in 2001. With building levels still in check and the economy expanding, large house price declines appear unlikely for now. But if the economy falters, both job growth and housing prices will come under renewed pressure. This would spark higher default rates, especially among subprime borrowers, and turn housing from an engine of economic growth to a drag

Today, the Harvard report says (in part, clearly):

A strong, sustained economic expansion could, however, produce a quick turnaround—particularly in markets that did not experience the worst of the foreclosure crisis. Buying a home has rarely been more affordable, and a more robust economy would provide the income and confidence that would enable many potential buyers to make the long-term commitment of owning. Indeed, homeownership continues to have strong appeal. In the fourth quarter of 2011, the Fannie Mae survey found that seven out of ten renters—as well as more than eight out of ten homeowners who are underwater on their mortgages—think that owning makes more financial sense than renting.

Young first-time buyers, including an increasing share of minority households, will drive future growth in homeownership. The question going forward is therefore whether the troubled mortgage market will provide access to affordable mortgage credit for borrowers with limited savings and anything but the highest credit ratings.

So, yeah. That’s why, even in light of today’s pretty-positive data I remain cautious, on behalf of my buyers, sellers, integrity and conscience.

We’ll see what the next five years bring.

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