On Thursday, I met with Dr. Lawrence Yun, Chief Economist for the National Association of Realtors at Merrimack College in North Andover, MA. Dr Yun was brought to our area by the Education Committee of the Northeast Association of Realtors. Dr. Yun deciphers market statistics for the Realtor Association on a national level and gives guidance on what lies ahead for the industry. His talk with us yesterday provided insight as to what has happened over the past 12 years, a deeper level of understanding behind the numbers and pointed out the challenges that could derail the current gains made in housing.
On the Crash:
Dr. Yun believes it was not the low down payment programs that caused the crash, it was the loose lending standards that allowed loans to be made to people who could not possibly make the payments in the long run.
Current Positive Market Insight:
First half of 2012 strongest for sales in 5 years without any stimulus plans (i.e. first time home buyer tax credit plans, etc.)
The Housing Affordability rate as a factor of income compared to housing costs, is at the best level on record for affordability
The worst hit sections of the country (Arizona, being ground zero) are seeing big gains in unit sales as a result of investors stepping in.
Visible Inventory (homes we can see for sale) at new 6 yr lows, a sign of stabilization.
Nationwide Prices are stabilizing.
The Stock Market has completely recovered from 2008 lows.
Rents are rising.
Employment is on the rise as is Consumer Confidence from the 2008 lows.
Smart money is chasing real estate.
Current Negative Market Insight
New home construction inventory at 50 year lows. This is an indication of tight lending standards as medium and small builders can’t get loans.
Investor activity (homes being purchased for rental) is gaining faster than owner occupied home sales, as owner occupied buyers are having more difficulty getting loan approval.
Shadow Inventory, homes typically 3 months behind on mortgage payments as an indication of pending foreclosure, approximately 3 million which he considers high.
On Lending Standards:
Dr. Yun’s focused most of his concern on tight lending standards being the cause of the slow recovery in Housing. He points out that the “Pendulum has swung the other way” meaning that people who should be getting loans with solid credit, work, and a history of paying their bills are being denied loans or refinancing more than usual. He points out that banks are sitting on piles of cash, (as proven by the banking industries recent positive earnings reports) and afraid to lend, due to massive oversight from the government and past history.
Yun goes on to say that when you dig deeper on the losses that Fannie Mae and Freddie Mac are reporting, those losses are on legacy loans made during the loose lending times and that if you break out the results of more recent loans made since 2010 you would see that those loans are performing very positively.
A comparison was made of average credit scores required to obtain a loan back in the year 2000 (considered a normal market for his example) compared to 2010 (a period of extreme tightening in lending). The averages in 2000 for Fannie, Freddie and FHA were 720, 720, 650 and in 2010 were 762, 758, 698
He points out that the media has regularly misreported the amount of Total Homeowners who are “underwater” on their home (meaning owe more on their mortgage than the home is worth). The number is usually reported as “35% of all homeowners are underwater on their home” when in reality that is the number of homeowners who have a mortgage. The actual number of ALL homeowners is closer to 15% as not everyone has a mortgage. He felt it important to make this clarification as the higher number can impact confidence in consumers.
Yun was pleased to report that we are recovering better than most of the country with Massachusetts being up 21% in unit sales for the 1st half of this year as compared to last year, with only a slight drop in median sale price, while our inventory levels have dropped 17%. He also points out that during the crash period, Boston was not hit as hard as other metropolitan areas. This was because fewer homes were being built due to less land availability and learning from the mistakes of over-construction which was experienced back in the 80’s
Ron Carpenito– Real Estate Consultant / Owner
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