The residential-real-estate market, after virtually falling off a cliff from its apex of a few years ago, is being buoyed by a recent string of positive sales data.
The residential-real-estate market, after virtually falling off a cliff from its apex of a few years ago, is being buoyed by a recent string of positive sales data.
While analysts are clinging to signs of a housing market bottom, most acknowledge that there are still challenges ahead and some doubts as to whether the industry can gain enough steam to pull itself out of the residential downturn.
For financial advisers, any glimmer of hope in the housing space is now triggering new inquiries from anxious clients about buying, selling and investing in residential real estate.
An 11% increase in the number of new-home sales from May to June, for example, was described by some analysts as evidence of a housing market recovery, or at least a sign that the downturn is hitting bottom.
However, much like the stock market that has rallied this year on corporate-earnings reports that essentially have been less negative than anticipated, the sunken state of residential real estate has reset to a level not seen in decades. And that can make virtually any activity look positive.
“New residential sales are up month-to-month, and that is a sign pointing in the right direction, but sales are still down more than 21% from a year ago,” said Paul Bishop, managing director of research at the Chicago-based National Association of Realtors.
THIRD STRAIGHT UPTICK
New-home sales in June climbed to a seasonally adjusted annualized rate of 384,000, marking the third consecutive monthly gain following a 34-month slide. But that annualized sales rate is not only lower than that of any year since the Department of Commerce started tracking the data in 1963, it is also dwarfed by the 2005 peak of 1.3 million new-home sales.
“An 11% increase off a very low level is still a very low level,” said Steve Melman, director of economic services at the National Association of Home Builders in Washington.
“It might be the beginning of a positive trend, but this has been a very dismal period.”
While rising unemployment, a tight credit market and near-term economic uncertainty all seem to stack up against a housing recovery, the residential-real-estate market could pick up some momentum from pent-up demand, temporary tax incentives and anxious investors with fresh memories of the recent boom times.
EARNING THEIR KEEP
This is where financial advisers will be earning their fees — by helping to guide clients toward rational decisions in the midst of what is still a very dicey market.
“I'm seeing a lot of interest from clients right now who want to start buying vacation properties and investment properties,” said Michael Kalscheur, a financial consultant with Castle Wealth Advisors LLC, an Indianapolis-based firm with $150 million under management and another $150 million under advisement.
“I think the pricing is competitive now, and people are taking notice,” he said. “We go through all the pros and cons with clients, and we're telling people to proceed only if it's a goal they've already had, but don't do it if you think it's a way to make some easy money.”
Nationwide, median home prices fell by 24% from 2006 through March of this year, according to the National Association of Realtors. But the story, as always when it comes to real estate, is most telling at the local levels.
The median price in Akron, Ohio, for example, fell by more than 56% to $50,000 over that period. In Fort Myers, Fla., it tumbled 67% to $87,000; in San Francisco, 46% to $402,000; and in Lansing, Mich., 52% to $67,600.
For some interested buyers, the current price levels are looking like great opportunities, but advisers are warning clients that the days of flipping real estate for a quick profit are long gone.
“Right now, people are still looking for opportunities in real estate, but we're not recommending that people buy right now,” said Matt Havens, a partner at Global Vision Advisors, a Hingham, Mass.-based firm with $100 million under advisement.
“We're looking at the macro-economic environment, and the indications are that real estate will continue to decline.”
With that in mind, Mr. Havens said, he is advising clients to consider selling now if they are planning to sell a home in the next few years.
“We're not running around with our hair on fire telling people to sell all their real estate, but we are telling people that things could get worse,” he said.
HOW LOW CAN IT GO?
Again, the issue boils down to location, as is illustrated by the strategy employed by Bert Whitehead, president of Cambridge Connection Inc. in Franklin, Mich.
“I might be biased because I live in Michigan, but I don't know how low prices can go,” he said.
Mr. Whitehead, who charges clients on an hourly and flat-fee basis, has put his house in Franklin on the market because he believes that prices in Michigan will be even lower five years from now when he plans to move out of the state.
“I feel more comfortable buying real estate after it has started to turn around,” he said. “But if you're buying for personal use and you're going to live there, I tell clients to go ahead and do it.”
Virtually across the board, financial advisers are doing their best to deter clients from entertaining notions of trying to make fast money in the topsy-turvy housing market.
“When clients called me about flipping real estate, I told them if they think they're going to make money that easy, they're already too late,” said Steve Podnos, owner of Wealth Care LLC, a Merritt Island, Fla.-based firm with $110 million under advisement.
“If someone is going to buy a house to live in, it's a quality-of-life issue,” he added. “The valuations today might be no more real than they were three years ago, so I tell people to buy what they want, because a long-term fixed-rate mortgage is a good hedge against inflation.”
E-mail Jeff Benjamin at jbenjamin@investmentnews.com.
