Dan's Papers - May 22, 2009

With the economy being the way it's been and the word recession embedded in our minds, there are a lot of indicators in real estate that are very positive - indicators that weren't present during this time last year.

Paul Brennan, the regional manager of the East End for Prudential Douglas Elliman Real Estate, released some information that explains those indicators, and it is a very interesting list. First off on the list is the fact that the S & P 500, the best indicator for explaining how the United States stock market is doing, has gone up 33% since March of 2009. This of course, doesn't offset the fact that the market plunged much further than that in the last 12 months, but the fact that it has gone up steadily for two months is a very good sign for real estate. Historically, the stock market is an excellent indicator for looking ahead at the overall economy - when it goes up, real estate transactions follow.

Another good sign in the real estate world again points to the stock market, but more specifically the stocks that have caused the crash - namely, the banks and major financials. Since March of 2009, stocks like J.P. Morgan, American Express, General Electric, Bank of America and Citibank have gone up dramatically from their horrendous lows and they're actually showing signs of stability. As the banks continue to do what they need to do to recover, the ripple effect created as they came crashing down will ripple again through the economy, this time with stability. The broad based index of financials has gone up in price 95%.

What does this have to do with real estate? This is huge for real estate. As more of the financials stabilize, take fewer lending risks and acquire more money from deposits, the real estate market will become much clearer as well because people will be able to predict with more confidence the loan amounts they might get from lenders, and what they can afford and what they can't. Contrast this with what has been happening in the last year, when potential homebuyers or investors have been running scared or waiting endlessly for signs of stability and recovery.

The Case Schiller housing index, which measures single family home prices across 20 major metropolitan areas year to year, has also shown a positive sign for the first time in a long time. It's less-than-expected decline of 18.6% is a big number because it's the first time in the last 25 months that the index didn't reach a new low, which means that it is now at least going in the right direction.

Federal Chariman Ben Bernanke has also come out and said that the economy is stabilizing and showing signs of recovery, which is actually a pretty meaningful statement considering that Bernanke is known for speaking his real thoughts on the economy, and wasn't a cheerleader ignoring the credit crunch like many other captains of the financial industry.

On top of this positivity is the fact that there are many very savvy real estate investors in the Hamptons who have been waiting for the optimal opportunity and are now actually getting the prices that they want. The stand off between seller and buyer is beginning to come to an end and more sellers are negotiating with buyers who have the money to buy and know a price they will pay. This has put the market this year in the buyers' hands, which has presented a real opportunity to get homes at lower prices. It's a big improvement from the stand off that presented no real opportunity for the buyer, other than the ability to wait, causing an ugly stagnation. Happily, that now seems to be coming to end.