Shopping
Over the past several years, we’ve watched consumers tighten their belts; boosting their saving rates and working to clean up their credit. With the economic crisis that has blanketed the nation over the past several years, reforming our spending and saving habits is appropriate and healthy.
In light of this reality, the economic data within the past thirty days is particularly insightful. It is most accurately reflected in what we witnessed during the recent Thanksgiving weekend.
Sales were up 16% over the same period last year; with the average shopper spending $398.62 as opposed to $365.34 last year. What’s most interesting is the 44% indicate that they spent this money on themselves! That’s right…me, myself and I! This was not shopping for Christmas presents. This was about satisfying the driving craving to buy something…anything. To feel good again. Consumers seem to be indicating that they’re ready to move on with their lives. They’ve adjusted to the ‘new normal’…at least for now.
What Does Black Friday Frenzy Have to Do With Real Estate?
So, what does this have to do with real estate? Potentially a lot. I believe there is a pent up demand to enter into the housing market again. Just like retailers used deep discounts to lure shoppers into the marketplace for deals which lead to other purchases, real estate is currently deeply discounted across many parts of the country. Some heavy hit areas like Las Vegas and Florida are already seeing an upward trend in sales from investors. West Michigan inventory levels are the lowest since 2003.
But unlike, the frenzy that fueled sky rocketing prices in the period between 1998 – 2005, this market is being driven by a market which is awash with real estate at discounted pricing of 25% – 30% in many areas and a fairly substantial level of current inventory. ( although inventory levels are currently declining in many areas of West Michigan) In addition, today’s borrower is healthier. We are witnessing an increase in ‘Cash’ transactions and because lending standards have become so stringent, borrowers who do qualify for mortgages are considerable less likely to be candidates for default in the future.
On the national level, the Midwest region led the nation in the rise in Pending Sales during the month of October. According to this article in US News and World Report, Jed Kolko, the Chief Economist at Trulia is quoted as saying,
“This is a forward-looking indicator of what’s likely to happen with completed home sales, It points to a bump in seasonally adjusted home sales for the rest of the year.”
However, this ‘bright spot’ is tempered by another sobering reality. During the same period of time, the number of transactions which failed to close also jumped to the highest levels seen in quite some time. Contract failures climbed to 33% from 18% during the previous month of September. The main reason for the volatility seems to be issues with financing, as many contracts fell apart because loan commitments were denied after the initial acceptance/negotiation phase of the transaction.
This poses a real dilemma. A mixed bag of sorts… On the one hand, there is pent up demand. On the opposite hand, banks remain skittish in their lending habits, sometimes denying loans for the merest perceived infraction. During the most recent NAR convention, Economist Lawrence Yun indicated that if lending standards simply went back to pre-crisis mode, there would be up to a 15% -20% increase in activity almost immediately. Yet, consumers are indicating a willingness to look again as renting rates have increased 6% overall while the cost of owning a home has decrease 2.6%.
Photo credit courtesy of Gandhiji’s photostream on Flickr via Creative Commons license.
Passion! 
