Article: Economic Recovery and Housing Recovery in 2012

Although we would all like to see a recovery sometime soon, the odds are very much against it. The facts show that the recovery won't even start for at least 3 years and it will be a tepid recovery at best. Banks simply can't make loans; lending standards are tightening daily and working against any quick recovery. Banks can't make loans unless they again bend the rules.

The one thing that is in the favor of potential buyers is low interest rates. The main problem of course is jobs. With more being lost every day, employment history chains are being broken and prudent lenders typically won't approve a loan without a complete two year employment history. Small business owners are in a worse position for obvious reasons and their lack of income will prevent them from being qualified for at least two years.

The second major problem is falling credit scores. Credit card companies are lowering limits on all customers with outstanding cards to limit their risk even if they were timely payers. The consequence is that average credit score has fallen dramatically. If a consumer holds more than 4 credit cards, the average score has fallen at least 25 points. Canceling your cards actually makes the problem worse and lowers your score further, Additionally, if a consumer now owes more than 40% of your credit card limit because they took advantage of promotional rate offers, the score has fallen at least 50 points if not 75 points. These score reductions are now pushing borrowers previously rated prime, into the subprime category. The average credit score has been realistically estimated to now be 650, which is now subprime territory for the average consumer. This subprime category has higher rates, which makes qualifying for a loan more difficult causing more downward pressure. Lower credit scores are now responsible for higher insurance rates and of course job rejections.

You should see by now where this logic is headed. Appraised values and subsequent loan amounts are falling due to falling prices which is stating the obvious, but still not being comprehended seriously by anybody. As values and prices fall, more properties become now "upside down," subsequently foreclosed on and are then sold at even lower prices. The downward pressure continues on from there. Coincidentally, the foreclosures that were being held back from December until February by many lenders are now being brought back to life, which will add to the overwhelming amount of homes now on the market. With increased inventory, real estate agents are now in a race to actually reduce the prices of listings so properties can be unloaded before more come on the market. This leads to more "upside down" properties and the cycle continues even further.

Qualifying for a "jumbo loan" is becoming more difficult as salary cuts are being put in place in order to keep one's job. Salary cuts will obviously result in lower loan amount approvals, putting more pressure on prices to fall further. If the banks are pressured to loosen up their standards now, we will see a repeat of the crisis we are in now. The combination of job losses and falling prices should stabilize within 3 years, just before the next major election in 2012. Some will argue that housing activity is increasing as prices fall, which makes my argument even stronger. The qualified "buyer pool" is quickly evaporating and all that will be left will be a few buyers, with plenty of if inventory to choose from at very depressed prices. The prices are dropping. The rude awakening is coming soon and the recovery is coming later. Based on this simple reasoning, the economic recovery and housing recovery is a long way off