Raymond Alvarez: A strange thing happened on the way to the real estate apocalypse. It didn’t happen.

Pundit and journalist alike had everyone looking the wrong way. But, who can blame them? How can you ignore the plethora of foreclosure signs on the way into the office? It turns out they weren’t looking hard enough for more signs.


Almost every where you look these days, there is an outbreak of healthy indicators. Among them are rising prices in real estate and an inflow of new investor capital. Those investors have been active, indeed. Since 2005, there have been 4 million properties converted to rentals.

Not so fast, say the doomsayers. What about the QRM Rule? I’ll get to that.

The financial world allows for accumulation of vast wealth. First rule of the market: An individual can run the table again and again. But one day, it ends. Just ask billionaire John Paulson who was heavily staked in a bet that the trillions riding on real estate was headed for a crash. Paulson’s hedge fund made billions in fees when the bubble burst. However, not even Paulson is immune from the rule of market that all things come to an end. Second rule of the market: the bigger the fund, the more unlikely it is for the fund to keep winning. In recent days, Paulson’s hedge fund has been taking haircuts on gold.

If there was an apocalypse, that too will pass.

The wreckage and ruin of the real estate bubble were real enough. Just ask the 5 million who lost homes. An estimated $7 trillion left the economy in 2008.

It would be the banks themselves that signaled a shift. Under pressure from Congress, regulators leaned heavily on the banks to reform the abuses in the industry and assist those who were struggling. At the same time, the attorneys general for 49 states pressed the case for those who lost homes through foreclosure. The states would accept a cash settlement. The $58 billion was a paltry amount in terms of damage done. But it sparked change.

Hazards were real, too, even for healthier local economies and real estate markets that managed to avoid overheating. Take a state like Colorado. The Front Range cities clung to higher real estate values not unlike the last climber tethered to others who have gone over the edge. The state held firm but felt the strong tug of the rest of the nation as the economy plunged. Venture capital vanished. Lending went away. The prospect for new business seemed dismal. And not the least of concerns: Jobs went away.

All of that is already changing.

The case for a “housing construction tsunami.” Hold on you might say. Tsunamis are associated with devastation. You’re quite right. The term commonly is used with dire warnings of another downturn. But, this time devastation is coming for the notion that housing is doomed. Why the term “tsunami”? Tsunamis in nature are caused by earthquakes under large bodies of water. With 25 percent of mortgages still underwater, this group could finally overcome inertia as prices rise. This analysis states the case for why a building boom is overdue. Get ready. The ground is about to move.

Boom predictions are not all that rare. They have been drowned by the vigorous handwringing and din of noise from doomsayers. Barclays has a boom coming in 2015. Others have been right on the money, though new building is uneven across the nation.

In 2011, Steve Forbes interviewed Brian Wesbury, chief economist at First Trust Advisors. What Wesbury said in part was that the U.S. economy needs to produce 1.5 million houses yearly just to keep up with population growth. At the time, he noted there was a mere seven months’ inventory. That number has shrunk to four months.

In 2012, the Carlyle Group backed its recovery forecast noting fixed residential investment – new housing construction and renovation – was responsible for 10 percent of economic growth in the fourth quarter of 2011.

Foreclosures threatened to collapse the market. It’s not happening.

Viewed from the perspective of six years later, today’s real estate picture stands in stark contrast to the devastation of 2007. For 14 months running, Denver area real estate agents have been starved for more listings. Buyers have returned en force to find tumble weeds blowing where there should be houses going up. In one of the more telling developments of a shifting ground, Denver area agents were asking other agents to stage more open houses so they would have something, anything to show clients. At the low end of the market, houses are snatched up the same day they go up for sale. As strong buying resumes this spring, observers are looking for a historic surge of buying for the Denver area.

The naysayers are calling it a temporary adjustment.

Historically low mortgage rates, affordable prices and slowly falling unemployment numbers might suggest the market is prime for a resurgence. A “shadow inventory” seems to have gone missing and many even expect those who lost homes in the crash to return. Those who lost homes to foreclosure more than five years ago, technically qualify for loans, that is if they have jobs. So, why haven’t there been more homes sold? Confidence among builders sagged until recently. No one was building because they lacked financial backing or the strength of conviction. The skeptics apparently have held sway. Housing has not been able to get out of its own way. More buyers might enter the market, if they only could find financing.

Paulson is among the bullish, and has been for some time. The business press noted he has been buying up tracks of housing in Arizona, Nevada and Colorado at least since 2008. His wagers have been set down in sunbelt states hit hard by foreclosures. He apparently is betting that in the minimum, millions of new retirees will again be seeking a warmer climate.

Would-be buyers – the millions of renters and newcomers still on the sidelines – are a signature or two away from bursting the dam of pent-up demand. Surveys of renters run as high as 81 percent for those who want to own a home in the next 10 years. It’s not so far-fetched. In Colorado, it will be possible for many of them under the Colorado Housing Finance Authority, which inherits $202 million from the bank settlement reached with the attorneys general. That might not sound like much. But remember how leverage works. That number is a multiplier. These funds will be used to bolster other financing as well as rescue homeowners in danger of losing their homes.

New money is coming into the market, but not from the traditional crop of young adults intent on putting down roots. Real estate thawed early in Florida where a winter outbreak of buying saw more than a few foreign investors resort to buying sight unseen. China and Canada are in a frenzied competition to move money away from their own frothy looking markets. Investment is percolating up from Brazil, too.

What could hamper a dramatic recovery are capital shortfalls as well as labor and materials shortages for builders. A house can’t be built if there is no lumber available. And there is concern that the QRM Rule to take effect this year will slow buying, even sending real estate back into the doldrums. Some would argue the cure for runaway markets is too harsh. The “hair of the dog drinking” by lenders – if it exists at all – will end this year. The QRM, which addresses the predatory lending practices that helped sink the economy, is an unnecessary strain in an economy that is only slowly responding to mammoth infusions of capital, critics maintain. Shady “loan originators” would like nothing better to go back to the days when anyone with a pulse could sign on for hundreds of thousands of dollars.

Wall Street quietly resumed the practice of selling securities backed by mortgages. To move the massive amounts of money again, there has to be a vital ingredient: confidence. That all important measure that signals a strengthening economy will be supported by yet another layer of regulation. Admittedly, such regulation resembles window dressing in the real world. For Washington’s benefit, I’ll add a footnote. Regulation must be real. Nothing short of a paradigm shift will suffice. Regulation must be enforced. In other words, Washington needs to take its political face off long enough to attend to the job it is assigned.

Denver area overview:

Item No. 1: Rental vacancies in the Denver Metropolitan Area have all but vanished. Jefferson and Douglas county vacancies are below 2 percent. Rentals were already in acute shortage before the year started, and the situation has been growing worse.

Item No. 2: Foreclosures have been dropping by double-digit percentages for months. Colorado months ago fell out of the nation’s top 10 foreclosure states in December. Inventory is quickly snatched up. And the number of distressed mortgages has drawn below pre-recession levels.

Item No. 3: Braking too aggressively on new home construction continues to build pent-up demand. The housing shortage already could be termed acute. A few buyers intent on living in their purchase took advantage of homes sold through foreclosures and short sales. However, the typical buyer prefers to steer clear of the headaches associated with rehabilitating homes.

Additionally, the recession’s worrisome lack of hiring is an unfortunate turn for the millions of Echo Boomers (aka Gen Y). The vexing question to why so few jobs are being created might have its roots in suspect data. Just in recent days, a Harvard Study that was the basis for forecasting a flat economy was revised upward. News comes today that the economy great at an adjusted rate of 2.5 percent in the first quarter. Economists now expect 2 percent growth and higher to be the norm. The run up of the Dow should have been our first clue.

Possibly enlarged by a snickering group borrowing the power of social media, the end of the world never came.

Some fixes, additional jobs, and loosened financing will unleash the tsunami. It appears more certain now.

Raymond Alvarez is an illustrator and graduate of the Ruby on Rails fall 2012 program. A contributing writer to Impact, Alvarez offers previews of artwork at https://www.facebook.com/Ascending.Art. Alvarez, a former newspaper reporter, is an active blogger on Facebook, Google+ and Twitter.  His wife Susan is a Realtor. They share responsibilities in maintaining a Facebook blog: BolderRealEstateTeam