As unemployment and household income continue to be lingering issues and distressed assets are still prevalent. So it may be worth looking at all the big-picture factors affecting this trend and considering whether one is in a position where waiting to sell into a stronger market is the best way to go or not.
Manuel Lasaga, president of StratInfo, said in a recent webinar that the higher debt and a drop in the value of their assets consumers have encountered are still affecting the overall household net worth value and the recovery effort. According to the federal reserves “flow-of-funds accounts” report, the national loss of household net worth was $2.5 trillion when the 2001 recession occurred. Between 2007 and 2009, there has been a household net worth loss of $15.45 trillion.
Lasaga said investor real estate continues to be driven by household income, which is determined by employment expectations. The market continues to be haunted by the two biggest job losses seen nationwide during the fall in the real estate market. These occurred in the construction and manufacturing sectors. Between 2007 and 2009, the construction industry saw 11.2% of its jobs reduced and manufacturing saw a 7.6% decline. In 2010, there were 8.2% fewer jobs in construction and a decrease of 2.7% positions in manufacturing. (Two industries were not impacted by the recession: educational services and health care. Administration services in 2010 also saw a 2.8% expansion, which was boosted by temporary employment.)
Foreign investors, which hold 46% of the federal debt in 2010, could determine the U.S. real estate market’s future, Lasaga said. He said a cheaper U.S. dollar would attract more foreign investors to acquire real estate in this country.
Bill Worrall, corporate vice president at The Continental Group, a subsidiary of FirstService Residential, told this publication that both domestic and international buyers are paying in cash with very little financing. Worrall said cash has been coming off the table into U.S. real estate because internationals are taking advantage of the exchange rate. He noted that during the second half of 2010, Florida’s notably distressed market, for example, saw an increase in real estate transactions for individual units. These were mostly REO transactions involving structures with five to 10 units or less, and commercial real estate spaces.
“Many buyers are using cash to get one-year leases, but are not extending them yet,” Worrall said. “Brazil and Venezuela feel more comfortable investing in U.S. real estate and moving cash out of their own countries. This is huge progress to see that buyers have cash and it shows a level of confidence that the rest of the market may be able to turn around which has not happened since 2006 to 2007.”
In Florida, 21% of the total housing market consists of vacant lots, putting a strain on banks and other government entities. Instead of only providing guaranteed mortgages, several institutions that were lenders in this state still own and manage real estate.
Matthew Phillips, vice president of real estate services of FirstService Residential Realty, said in the webinar there is currently more oversupply in many of the markets that his company is active in and clients still in many cases have to determine if they are capable of taking a loss to sell their distressed property. “Our banking clients have to be able to write down the value of that asset and sell it and know they are taking a loss,” Phillips said. “While working with investor clients, we have to determine if they can purchase that asset, add a discount in price and resell the lot.”
Phillips said the values for assets differ in every market, but the inner core markets of Florida are seeing prices reset from $500,000 to $300,000. “There is not a lot of movement where there has not been a significant price reset,” Phillips said. “Someone, either the lender or the original homeowner, has to take the loss on that.”
But state employment cycles are starting to turn around, with construction down just 9.2% in 2010, an improvement on a 20.3% drop between 2007 and 2009. Construction saw employment losses go from 10% in 2007 to 2009 to only 5% at the end of 2010. In 2009, visitors from Latin America and the Caribbean helped bolster the economy, with more than 31% of the total visitors to Miami-Dade County in this category.
However, Worrall said the key to filling vacant homes is more domestic migration. In 2009, there was a drop in in this by 31,179, while international migration increased by 87,381. The U.S. Census estimated that 114,091 people lived in Florida in 2009. “There are not enough people to fill up the number of available homes,” Worrall said. In order for all the residential units to be absorbed, he said, “there also needs to be an increase in first-time homebuyers and grandparents can not continue moving into the homes of their kids.”
