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August 19th, 2010 10:27 AM by David W. Welch
It should be obvious, but I find that sometimes the obvious is not. You can forget about reading about the real estate market until jobs begin to return. At its core it is really quite simple; you need a job to afford to buy a home. Where it gets more confusing is when you consider that you need a job to rent a home too. I cannot speak for other markets, but here in Orlando rentals are quite strong. This is where some of the psychology of economics comes into play in my opinion. Economics is based upon the mathematical relationships of supply and demand. There is a human component to this equation though, especially when it comes to real estate.
Many potential buyers are still concerned about their job situation, even if their company has not announced any layoffs. When unemployment is almost in the double digits people worry a lot more about their job situation. The supply side of the equation is effected by psychology too. Most sellers still believe their home is worth more than their neighbors homes, and many do not think that the foreclosures or the short sales in their neighborhoods impact the value of their homes. Appraisers do account for the condition of distressed properties, but many are in good condition and reflect the true market value of the neighborhood. The concern about employment, warranted or not, limits the demand for homes. The persistent denial that values have gone down is creating the excess supply of homes available for sale.
New jobs will not change the minds of sellers that place too high a value on their home, but they will ease the minds of potential buyers. Right now employers are also wary about hiring as economic numbers teeter back and forth. It is also an election year that could be critical to the balance of political power in Washington. I am sure there are employers waiting to see what happens in November before they begin to make hiring decisions. Either way, added jobs will equal added home sales.
David Welch Real Estate Optimist, Orlando Real Estate