November is here and we are in the heart of football season. From the professional ranks through college and high school, and all the way to the pee wee leagues, games are being played. As the season wears on, coaches are constantly working with their players to better their skills and keep them focused on the fundamentals of the game.
Given the current state of the housing market, football makes for a good analogy. The fundamentals of football—pass, catch, kick, run, block and tackle—on paper appear simple, but in fact can be difficult to execute come game time. To waiver from working on the fundamentals is a sure path to defeat.
For those unaware, a football game is bookended by two halves, which are separated by an intermission appropriately known as half time. For players and coaches alike, half time in the locker room is a period of rest and assessment. Depending on a team’s performance, coaches will encourage, disparage, scream, yell, plead and engage in any number of verbal tricks and physical antics to get their team to do one of the following: Play well, continue playing well or suggest in a caring manner that the team get their heads out of their behinds.
Coaches often note that the first half is history no matter the score and the second half is the team’s only concern. It is emphasized that no matter how well—or poorly—a team performed, the score at the start of the second half is, as one particular assistant coach once aptly put it: “Nothin’! Nothin’!” The gist being the end result will be determined by a team’s performance in the second half.
From a housing perspective, the current market we’re in the midst of could be viewed as its half time. It had a breakout first quarter where trick plays and showboating prompted the market to perform well despite straying from the fundamentals. The second quarter, market forces caught on and, as one coach I had used to say romantically, got the snot knocked out of it. The undisciplined play resulted in penalties and losses.
To recover, housing experts and economists are telling us the playbook used in the first half needs to be tossed aside and a return to home buying fundamentals is required. The idea that a home is a commodity, a piggy bank if you will, to be cracked open every year or so as its value absurdly increases no longer applies. Most housing experts assert that it could take decades, not years, for home values to return to values of only a few years ago.
A home can still be looked at as an investment, but as more of a savings account, not an immediate source of capital. The offense that worked in the past obviously experienced a short-lived success, but when quickly countered by defensive forces, exposed its fundamental weakness: Forgetting the fundamentals.
So far, no one is predicting a return to the days when a home was where you staked your claim and remained till death do you part. Outright ownership, while a source of pride, is not a primary goal given this fast-paced world we live in where roots grow shallow.
As potential homebuyers stand on the sidelines rather than get in the game, the housing market’s second half will get off to a slow start. But as the recovery—however slowly—progresses and home prices continue to fall in line with the overall economy, it should have a strong fourth quarter.