The below article was written by the Stock Sage, Robert Sinn, at RobertSinn.com.
I posted this article, because it is concise and informative. google Real Estate thanks you Robert for sharing your thoughts and vast market knowledge.
US Housing has Bottomed…or Has it?
I have both personally seen and heard of numerous anecdotes that help to add weight to the argument that a bottom is in for US housing. However, it may be a “bathtub bottom”, certainly not the V-shaped bottom that we have witnessed in equities over multiple time frames recently. In Delray Beach, there are several developments that were built during the bubble period of 2005-2006 which had virtually zero transactions between late 2008 and 2010 – recently buyers have reemerged, the market has begun to clear, and prices have stabilized.
Over the weekend I had the opportunity to visit a close friend who is a real estate investor focused on single family residential in Daytona Beach, Florida. He had some extremely insightful observations:
- Single family RE in Daytona has essentially reached depression type of levels with cap rates north of 20% being quite common.
- 2012 is the “year of the short sale”…banks are now willing to pay commissions and negotiate – market is functioning once again as banks are willing to clear out inventory.
- Daytona property values are back to 1998-1999 levels
- Bank of America owns at least 1/3 of single family RE in the Daytona area with many mortgagors having not made a mortgage payment in more than a year. Those who continue to proclaim that BAC is cheap on a price/book value basis should seriously consider that much of BAC’s balance sheet is not properly marked to account for non-performing loans (some of which have not been performing for more than three years).
- Regions Financial which had previously been unwilling to move its REO inventory has begun to clear its inventory in the past few months.
- Several large investors (REITs) have recently completed large transactions ($10 mil+) for apartment complexes in the Daytona area.
- My friend says that the best catalyst to nail in the final bottom for housing will be nothing more complex than the simple passage of time. CEO Jamie Dimon agrees: “We’re adding 3 million Americans a year. In the next 10 years, we have 30 million more Americans. Those 30 million Americans are going to need 15 million homes, or something like that.”