Thread: What Will Fuel the Real Estate Market Recovery?

The real estate market has been skidding out of control over the past five years, and although there have been promising signs here and there, as a whole most people are skeptical about the recovery of the market and when – or if – it will recover.
Granted, most experts believe the real estate market will recover in the near future, perhaps as early as the end of 2012, just a little over a year from now (according to remarks from President Obama). And in some places – such as on the Coasts and in a few interior states – the real estate market is relatively stable. But, a systemic recovery of the real estate market will occur when a few obstacles are removed or reduced.

Note that the real estate market for investors and homebuyers is superb. Those who are willing to sit on a home – either as a primary residence or as a long-term investment – can purchase homes that are incredibly cheap and take advantage of stellar profits. For everyone else, though, the path first has to be cleared.

Unemployment Remains Stubbornly High
One big factor in the strength of the overall real estate market is unemployment. Generally speaking, the higher the unemployment rate, the weaker the housing market. This is because people can’t afford to purchase or build homes without having jobs – and with a current seasonally-adjusted unemployment rate of 9.1%, that is a lot of Americans out of work.

Unemployment is a lagging indicator, so any new job creation that happens today may not impact the economy – and thus the market – favorably for a few months. But in the end, unemployment will have to come down, and that can only happen when there is enough consumer demand that pushes businesses to hire.

Foreclosure Process Slowed to a Halt
The clogged foreclosure pipeline is another obstacle to a total recovery. As of April, there were 6.85 million homes either in default or in foreclosure. Fannie Mae and Freddie Mac together own nearly 200,000 foreclosures – and that was before Fannie Mae put down $500 million to service Bank of America’s mortgage portfolio.
These foreclosures need to be processed and put on the market as quickly as reasonably, legally, and ethically possible (without resorting to robo-signing). The faster investors snap up these properties, rehab them, and put them on the market, the sooner home values will rise – and that will ultimately help everyone, buyers and sellers alike.

One idea is being tried in Chicago with an initiative led by Mayor Rahm Emanuel (the former White House Chief of Staff to President Obama). The initiative will use a $20 million foreclosure loan pool (that will soon grow to $50 million) with public and private funding sources to buy and rehab residential neighborhoods in Chicago that are particularly awash in foreclosures.

Creative solutions like that plan can help open up the spigot, so to speak, and allow these properties – many of which should be foreclosed and sold because they are either derelict and abandoned or too expensive in the first place for their owners – to be turned around. Investors benefit because even more profitable properties are available. Homeowners benefit because their home’s value will likely rise. And communities benefit because property tax receipts will increase.

The real estate market is still on its way to recovery, and soon, people other than investors and buyers will be able to benefit.

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