Expert Claims U.S. Housing Market At Bottom

Chances are most people aren’t even aware that the U.S. real estate market has already reached the bottom, according to a hedge fund manager who wrote a May 6 opinion column that appeared in the Wall Street Journal.

“How can this be?” the Wall Street Journal quotes Cyril Moulle-Berteaux, managing partner of Traxis Partners LP in New York, stating in his “The Housing Crisis Is Over” column.

“For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.”

Moulle-Berteaux goes on to elaborate how and why the U.S. real estate market in general is unlikely to get any worse in the future.

Even if this New York fund manager is proven correct, how and why would any reasonable person realistically realize the bottom is upon us?

After all, the latest data nationwide shows that median sales prices still appear to be falling, inventory keeps growing, year-over-year sales data continues to tumble, new housing starts are way down, and corporate write-offs are a weekly occurrence.

In South Florida, foreclosures are spiking, and bank repossessions are up 255 percent in the first quarter of 2008 compared to a year earlier. Banks are taking title on average 52 properties a day, including weekends, as borrowers forsake their properties, according to a recent Condo Vultures® LLC report .

Contributing to the pessimistic outlook on housing is the lack of financing available in the market, especially for condos.

This lack of available financing is not limited only to subprime borrowers but also to primary users who have a 25 percent down-payment and an above-average credit score.

With these bleak circumstances, the pundits declare that no one in good faith would think that this is the time to buy.

Buyers are opting to purchase today because no one else is doing it. Remember that for many qualified buyers, the credit crunch, and not a disdain for real estate, is really what is keeping many individuals on the sidelines against their will.

“Even if the trumpets were sounding and the fireworks were exploding to signify the bottom of the market, many people still couldn’t buy real estate right now because of the lack of financing available on the street,” said Peter Zalewski, a principal in Condo Vultures®LLC, a Bal Harbour, Fla.-based consultancy. “That being said, we are dealing with a steady flow of all-cash buyers, both bulk funds and individual purchasers, who are in the market. These all-cash buyers realize the window of time before credit returns to the market won’t be long given the efforts by the federal government and central bank.”

Several buyers looking to purchase today have decided to acquire properties for a variety of reasons that goes beyond real estate. Some of the most cited external factors spurring a desire to buy today are the weak U.S. dollar, the inevitable change in the presidential administration, record high prices for precious metals, and low interest rates.

In South Florida, two other factors – new product coming online and the quieter summer season - are contributing to a growing sentiment that the time to buy is quickly approaching if not already here.

The bulk of the new condominium product in Greater Miami is scheduled to be finished within six months. As buyers scour the market looking for discounts, many are getting a chance to see each tower in person, rather than just studying the architectural renderings and floor plans.

“People are realizing that the overbuilding in the condo market has created in effect a bad sector that still has good buildings,” Zalewski said. “Today’s buyers are quickly figuring out which buildings are superior, and actively working to purchase units in these condominium towers at attractive prices. The inferior buildings are having a difficult time with closings as buyers are deciding to walk away from their 20 percent deposits rather than be stuck with a difficult resell in the future."

The other South Florida factor influencing today's buyers is the seasonal transition from the bustling winter tourism season into the quieter summer season when real estate transactions typically tail off. Many buyers see the summer stretch between May and September as the right time to get in before the market begins to head back into the winter tourism season that begins in November.

This particular November is of particular interest to bulk buyers and individuals with foreign currencies as a new president will be elected this year. Many of the bulk buyers and foreigners seem to think that the U.S. dollar is poised to strengthen heading into next year for a variety of reasons including a change in presidents.

The buyers reason that purchasing discounted South Florida property with a strong foreign currency offers an opportunity during the next several years to realize a gain not only from real estate but a strengthening U.S. dollar.

“No one knows where the bottom is, or when the right time to purchase really is,” Zalewski said. “All a buyer can try to do is determine a comfortable price point and then let the market come to them. If the market never gets to that buyer’s comfort level, the buyer then has to decide whether or not to revisit his or her strategy.”

Peter Zalewski is a principal with the consulting company Condo Vultures®LLC and a licensed real estate broker with Condo Vultures® Realty LLC. Peter can be reached at 305-865-5629 or by email at peter@condovultures.com . Be sure to check out Peter’s blog at CondoDump.com. Don't forget to sign up for our weekly Market Intelligence Report.

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