There is improvement in the market but there are huge obstacles in its path that have divided economists into two camps. One camp says we have seen the bottom and have begun a slow growth cycle. The other camp says we must not be fooled by the current uptick in statistics and that there is more trouble on the horizon. The bears point out that REO’s are building and unemployment is rising. The bulls see an improving economy with rising stock markets, improvement in the housing and financial sectors, and new corporate profit reports. There is no question that our market has seen improvement, but it is still adjusting to the economic realities of a new conservatism.

Here is what we see in our Micro Market Report. Upper end markets remain quiet with few sales while other sectors of the market see new life. This is the opposite of what was happening when the market was peaking. Then, the first time buyer markets were slow and the upper end market was the busiest. Of the thirty-two markets we follow, sales volume last month increased in 15 micro markets and decreased in 17 micro markets from the same month in the previous year.

The loan market is still tough with stringent qualifying standards and very restrictive appraisal guidelines. This impacts the borrower’s ability to obtain loans over $729,000. Notice of defaults and the build up of bank owned properties raises the question: will there be a damming effect with an explosion of REOs that will hit the market all at once or will their be a slow release of bank owned properties as the banks try and work out loan modifications first? Will the government step in again and require the banks to manage this process? Another question that must be asked is, how much will California’s budget crisis affect our recovery?

These concerns wear heavily on the minds of the consumer. On the flip side, the lowest moment occurred between the months of November through March but since then we have seen steady and consistent improvement in most of the markets we track. The current momentum suggests we are seeing the beginning of a recovery. Predicting when the actual recovery will occur is not something we dare to forecast. Will it be stalled or even aborted by some of the threatening clouds on the horizon? Nobody knows, but we do like what we are seeing.

Filed under: Micro Market Updates on August 17th, 2009