By Liu-Yue (Louie) Lam, Oxstones Investment Club,
I believe the overall housing market is still years away from a sustainable recovery. But real estate has always been a location specific asset class and some regions will recover faster than other regions. The housing areas that had experienced the biggest declines will also be further along the recovery process.
But don’t expect a sharp recovery. The market has been slow to recover even with record low interest rates and favorable government policies to aid housing markets including delays in foreclosures. In some states it could potentially take up to 24 months for foreclosures to work its way through the legal system. For example check out NYC foreclosures at www.foreclosure.com In NYC we have one of the most cumbersome legal systems for foreclosures. Current foreclosures are only at 1,847. But pre-foreclosures are at 30,608. That’s a lot of shadow inventory in the pipeline and it is just getting started. The same scenario can be said for many other states (www.foreclosure.com) too.
So what happens once you take the housing market off the stimulus? I think it will be some time before the housing market will be able to stand on its own without government support. Banks are the largest real estate owners in the country with a huge backlog of shadow inventory that will take years to unload. There are also significant head winds for the real estate market such as potential tax code reforms which could eliminate the mortgage deduction. Lastly, higher real estate taxes are inevitable as state governments look for new revenue sources to fill budge gaps.
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