A number of realtors across the country can be heard making claims that we are ‘finally in a recovery.’ They like to site the summer’s sales figures as evidence. Let’s examine the facts so we aren’t mislead by, for all intents and purposes, the sales people.
The labor Department has reported consumer prices rose 0.2% in September. For the year, consumer prices are down 1.3%. This provides the Federal Reserve incentive to hold interest rates at record-low levels with the idea of giving the economy a needed boost.
In the week ending October 10, initial claims for unemployment benefits fell by 10,000 to 514,000. This figure came in a little lower than expected. The number of people still claiming jobless benefits in the week of October 3 fell by 75,000 to 5.99 million which is the lowest number since last March. Sound encouraging? First consider this:
From National Association of Home Builders: “The pending expiration of the $8,000 first-time buyer credit made for a disappointing 1 point dip in the October housing market index to 18, according to the NAHB. All components dipped in the latest report especially traffic which fell 3 points to 14. The results hint at a step back for housing which had been on the rebound thanks to government stimulus.”
From Associated Press: “The Commerce Department released its monthly report on housing starts Tuesday, saying they increased in September by a modest 0.5 percent to an annual rate of 590,000 new homes and apartments. Applications for new building permits, however, fell by 1.2 percent to an annual rate of 573,000 units.”
The facts tell a bit of a different story! In the light of the current economic trend many savvy, educated and well-employed families with 6-figure household incomes are assessing the damages and opting out of their homes now. This will clearly fuel the foreclosure fire for some time yet. Luxury homes will be – in fact, already are in default like never before in our lifetime! That’s right. The next wave of foreclosures will bring a flood of higher-end properties!
I have stated for some time now in my blogs, speeches, webinars and on my website, that this thing isn’t over yet – far from it. I do not see millions of educated, well payed Americans all taking the housing value implosion sitting down! The American way has historically been to take more than you give. Most people will not accept this short fall of hundreds of thousands of dollars. They will wrestle with the moral dilemma for a while but, in the end, will do their best to sell their home short and cut their losses.
In the long run, they will have taken a hit on their FICO scores that will be sustained for at least 2 years. Once their credit has reached an acceptable level they will purchase again – this time, at a much lower price. Do the math.
At this juncture I must interject the personal note that I do not agree with reneging on any contractual arrangement and I will not encourage anyone to default just for the sake of escaping their obligations. Nonetheless, my company had aided many families to find solutions once they are already in default. This means even providing them the opportunity to remain homeowners even when they have had to short sell their home. Remember this, it took America years to get to this point and it is not going to suddenly correct itself unless we learn to discipline ourselves and control our spending habits. Don’t hold your breath waiting for that to happen!