Doom and Gloom Rules Housing Commentary. Too Much Perhaps?

Just a few minutes to blog this evening, so I’ll zero in on Diana Olick’s column today almost promising a double dip for housing.

She correctly interprets today’s news about the increase in the April Pending Home Sales index (basically contracts signed but not yet closed for existing homes) as yesterday’s news. Everyone knew it would be a big number as buyers rushed to get in on the tax credit. Then she goes on to cite the cratering of applications for new mortgage purchases to support her contention that May is going to be a disaster. Calculated Risk tends to agree with her.

So do I, with one exception. I think that we’re going to get a better look at the impact of investors on this market with the expiration of the tax credit. They have been a big driver particularly in the hard hit states and there is a lot of anecdotal talk about that they’ve been competing hard with the first time homebuyers for foreclosures at the low end.

If organic buyers are going to pull back — a reasonable assumption — I think that we might very well see the investors fill in at least part of the gap. Any softness in price is going to lure them back into the market and to the extent that first time homebuyers may have been overpaying, it’s entirely possible that investors given better opportunities might step up substantially.

I also think that events in Europe might well play to the favor of the housing market. To the extent that Europeans are nervous about their economies and their overall direction, it’s not unreasonable to expect an interest in US real estate from them. There has already been a flight to quality in terms of financial markets and given the fact that there is a propensity among Europeans to prefer hard assets, the US residential real estate market might look a lot more inviting.

If Europeans do turn to the US residential real estate market, I would expect that the Eastern US and particularly Florida would be the biggest beneficiaries simply because of geography. I also suspect that they might have a propensity for condos which would be a real boon to a lot of markets and particularly South Florida.

In the end, I agree with Olick and others that residential real estate is due for some tough sledding ahead. I’m just not totally convinced that there aren’t more buyers than she thinks that will step in and mitigate the damage.

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About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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