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John Reinhardt Greater Atlanta & Surrounding Suburbs' Blog

By John J. Reinhardt | Agent in Johns Creek, GA

Economic Commentary Real Estate Market the week of Feb 13, 2012

It was a relatively quiet week with regard to release of data. And that allows us to return to our analysis of the housing factor while the markets focused upon the Greek debt negotiations. When we introduced the housing factor, we emphasized that our economy can't fully recover without a housing industry recovery. The housing industry is a very important part of the economy. The key question is -- can the housing market recover with such a huge shadow inventory hanging over the markets? The answer is yes. The shadow inventory will cause the housing recovery to be slower just as the weak housing market has caused the overall economic recovery to be slower. Many are predicting that the sheer numbers of homes hanging over the market will delay recovery by many years. Why do we think this is not the case? Sure the numbers look daunting. The estimates of homes which are foreclosed upon -- or could be in the future -- range anywhere from 3 million to 10 million. We will pick a nice round number--six million.

The markets can and will absorb this number rapidly if the economy continues to recover. How? We have been absorbing over one million foreclosures (REOs) annually in the past few years even with home sales depressed. Home sales are expected to grow from here. Meanwhile several government initiatives have already helped prevent many others. These initiatives include the government sponsored modification and refinance programs, both which are being revamped and are now stronger. The newly released servicing settlement and the government's planned sales of bulk REOs to investors as rentals have the potential to prevent or liquidate well over a million foreclosures as well. Finally, the ultimate wild card is the economy. If the economy continues to produce jobs at the rate of the past two months, many more homes which are potential foreclosures will never reach that stage and those that do will be purchased more quickly. The conclusion? A stronger economy has the potential to absorb six million in shadow inventory very quickly with help from our government. The high levels of REOs will keep price appreciation low in the near term, but higher levels of sales will boost the economy further and that will mean even more sales in the future to accommodate a growing population. Certainly there are obstacles, but this scenario is very plausible.

John Reinhardt

Solid Source Realty


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