The World's Most Dangerous Profession

By Randy Johnson for Credit.com

If you think dismantling bombs for an explosive ordnance disposal (EOD) group is a scary profession, I found one that’s even more dangerous: Predicting the future. The difference is that with EOD you aren’t allowed any mistakes. When predicting the future, almost no one ever gets it right.

My favorite expression about this is the following: There are only two types of people who predict the future: Those who are wrong, and those who do not know that they are wrong.

How does predicting the future affect the credit and loan world? Well, regardless of whether they own their homes free-and-clear or are under water, everyone is interested in two things: What is happening to home values and what the prognosis for recovery is.

There’s mixed news on the national and state scene. Home sales increased in July 2009. In the case of newly constructed homes, the Census Bureau reported an increase of 9.6 percent from June, although the seasonally adjusted annual rate was only 433,000. That is a fraction of the 1.7 million built a few years ago. These statistics are courtesy of the National Association of Home Builders:

The good news is that the statistics show improvement. One large national homebuilder announced that it had stopped lowering prices and was raising prices on some projects. Activity is much worse in the sunshine states where resale homes are, in some cases, being sold for less than the replacement cost of producing new homes.

The news for sales of existing or re-sale homes was much better. According to the National Association of Realtors, sales were higher nationally by 7.6 percent over June and 5 percent higher than in 2008. Even in battered California, sales in July were up about 20 percent, in line with the statewide numbers. Check the latest statistics for your state.

A friend of mine who monitors foreclosure sales at the courthouse steps reports brisk sales. These are not normal sales, and many of these investors are “flipping” the properties, fixing them up and putting them back on the market. It’s what I would call “foreclosure recycling.”

This news is largely positive and suggests that we are at or near the bottom in the housing market. But there are still some storm clouds on the horizon. Foreclosures and short sales comprise a sizeable segment of the market, but that’s not all. Two other negative aspects are exceedingly difficult to track, but they represent additional supply of future distressed listings.

The first is the number of homes that are in some state of forbearance by lenders. The loans may technically be in a state of default, but the lenders have stopped the foreclosure process. In a related group are homes that have been foreclosed upon, are owned by lenders, but have not been put on the market yet. From a lender’s standpoint, I can understand this. If they have 50 foreclosed homes on the market in an area and have another 50 in inventory, they may be saying, “Let’s wait until some of those first 50 sell before we put any more on the market.”

So now we get to predicting. I believe that housing market is related to job formation. The outlook there isn’t good because even though the economy is better, there is still some slack in employment levels with people working part-time who will go back full-time before someone else is hired. Also, with so many jobs tied to construction activity, it will be a long and slow haul for those folks.

Offsetting that, there is good pent up demand for housing in the country. A lot of people have been unwilling to buy a home in the last few years. Many of these people have been on the sidelines and are coming back into the market, lured by a combination of lower prices, low interest rates, and the $8,000 tax credit. Clients of mine were recently out-bid on a property where the price attracted other competing offers. I hear many stories of multiple bidders in the lower end of the market.

Finally, it is amazing how the media fails to emphasize good news. If our Gross Domestic Product increased from 2 percent to 5.6 percent, the media would be going crazy. As announced today, August 28th, 2009, GDP has improved from a negative 4.6 percent in the first quarter to a negative 1 percent in the second quarter. That is great news, but no one seems to have noticed. I did, and it made me feel better. I hope it makes you feel better too.