NAR Sees Silver Lining
National Association of Realtors' chief economist Lawrence Yun sees encouraging signs of stabilization in the real estate market alongside credit problems, decreases in home values and rising foreclosures nationwide.
Addressing a housing market outlook seminar at the recent 2008 Realtors Conference & Expo in Orlando, Fla., Mr. Yun said improved affordability is contributing to lower new and existing home inventory.
As measured by NAR's Housing Affordability Index, affordability is as high as it's been since 2003, he said, with the current index at 130. It means a family earning the median income has 130% of the income necessary to qualify for a conventional loan covering 80% of a median-priced existing single-family home.
These data, however, are bittersweet since according to Mr. Yun, improved affordability and rising home sales are reported in areas that have seen the most marked home value declines. "Some homeowners who were hesitant before have realized that, in many cases, now is a good time to buy a home."
NAR's most recent existing-home sales report shows the national price for all housing types was $191,600 in September, down 9% from one year ago when the median was $210,500.
In the third quarter of 2008, total U.S. housing valuation stood at $20.3 trillion, down from $22.4 trillion in the third quarter of 2007, but approximately equal to overall valuation at the end of 2005.
Region-wise, Mr. Yun said, increased affordability due to price changes has generated higher home sales in Arizona, California and Nevada, where sales rose 20% or more between the first and second quarters of 2008. During the same period Idaho reported the highest sales increase at over 51%, while Florida and Virginia saw sales increases of over 10%.
Consequently, inventory of new homes has been falling for both new and existing homes.
As of now New York has fulfilled its stated housing development goals. Since a peak inventory of 570,000 new homes in August 2006, as of September 2008 it dropped to 394,000. In September, inventory of existing homes also dropped to a 9.9-month supply at the current rate of sales, down from an 11.2-month supply in April, which was equal to 4,266,000 homes.
While the shrinking inventory is another encouraging sign that the real estate market is stabilizing, Mr. Yun noted that "more must be done" to achieve the best results possible in a crisis.
"Our research indicates that an interest rate deduction of just one percentage point could result in as many as 840,000 additional home sales, which would further reduce the inventory of homes by as much as 20%," he said.
More specifically proposed measures by NAR that would help bring more buyers into the market include a suggestion the government buy-down mortgage interest rates to ensure fixed low rates for homebuyers and the removal of the repayment feature from the first-time homebuyer tax credit, which is part of NAR's four-point plan presented to Congress in October. This plan also recommends the extension of tax credit to all buyers, making permanent higher FHA and conventional loan limits of up to $729,000 in high-cost areas to give increased affordability in these areas.
"NAR will continue to press for housing stimulus," Mr. Yun said.
A real estate market recovery depends on many factors, he said, including Realtors' efforts to increase consumer confidence by providing critical local market insights and knowledge.
In New York, city officials are focusing on effective management and foreclosure intervention at the state level, which is key to stabilizing the market and providing needed affordable housing, according to panelists at the recent 35th New York Housing Conference and National Housing Conference Awards Luncheon.
While in other parts of the country affordable housing construction is at a halt, the city continues to secure funding and pursue the mayor's new housing marketplace plan to build and preserve 165,000 units of affordable housing, said Shaun Donovan, commissioner of the NYC Department of Housing Preservation and Development. Mr. Donovan is President-elect Barack Obama's pick to run the Department of Housing and Urban Development in his administration.
Despite challenges, the city is on schedule with its affordable housing construction goals, Mr. Donavan said. HPD is working to provide affordable and sustainable housing for almost a million more New Yorkers by 2030.
Mayor Michael Bloomberg said the city's primary task at the moment is that of dealing with the foreclosure crisis, he said. The second as important issue, according to the mayor, is that of stabilizing the neighborhoods that were worst affected by the crisis. Over the next few months, he said, the city will purchase, restore and than reintroduce these affordable housing units to the marketplace. If there is a mortgage that can be refinanced, or a workout is possible, the goal is to ensure it is done, he said.
Measures taken at the federal level are welcome, the mayor said, but the city is not waiting for the federal bailout, it will continue to work as it has done before assistance was available. "Do we have problems? Yes," the mayor said, but the city is looking for innovative solutions even though current challenges include, for example, a drastic decrease in Low Income Housing Tax Credit funds.
As of now, he said New York has fulfilled its stated housing development goals.