August, 2010
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Top News
Water Water Everywhere
The state of the Obama Administration’s mortgage modification program reminds us of a quote from the Rhyme of the Ancient Mariner “Water Water everywhere, but not a drop to drink” There are millions of homeowners who want help, but the government is having trouble finding borrowers who qualify.
17 thousand new trial modifications were started last month, the fewest since the effort began nearly a year and a half ago. In fact, according to the Wall Street Journal, more than 5 times that number of homeowners were dumped from the program in July, either because they didn’t make payments, failed to provide necessary documents or didn’t meet qualification guidelines.
White House officials initially predicted the Home Affordable Modification Program would help 3 million households, but currently, about 422-thousand homes have received permanent loan modifications, and by some estimates, 20 percent of those loans will eventually fail because the borrowers have lots of other debt aside from their mortgages.
What Goes Up, Must Come Down
The old adage that “what goes up, must come down” is alive and well in the world of real estate. After a 4 month sales surge caused by the federal tax credit, home sales plummeted in July.
The latest Existing Home sales report from THE NATIONAL ASSOCIATION OF REALTORS® showed the sharpest drop in history, as sales fell nearly 27 percent from June, to a seasonally-adjusted rate of 3.83 million units, compared to a rate of 5.26 million just a month earlier.
The drop in sales had been widely forecast, and THE NATIONAL ASSOCIATION OF REALTORS® expects the soft sales pace to continue for some time, until the economy improves and more jobs are created. However, with very few new homes under construction to compete with existing homes, prices are expected to remain fairly flat over the next several months.
Even with the sales plunge, this is projected to be a slightly better than normal year, with sales of 5 million homes expected, 100-thousand more than the 20-year average.
Local Market Conditions
THE NATIONAL ASSOCIATION OF REALTORS® came out this week with its Existing Home Sales report for July, the first month we’ve seen in more than a year that was not largely influenced by the federal tax credit program.
Now, just as a reminder, the existing homes report includes sales of single-family homes, townhouses, condos and co-ops. But even with all of those added together, sales took a hard fall last month, to a seasonally-adjusted annual rate of 3.83 million units, a 27 percent drop from June, and a nearly 26 percent fall from the 5.14 million mark of July, 2009.
If those drops sound big, well, they are. Sales are at their lowest level since the total existing homes report began in 1999, and sales of single family homes, which account for most of the transactions, have not seen this low water mark in 15 years. It is indeed the sharpest drop in sales on record, and the only thing we can add to the news is that we did, in fact, tell you this was coming.
The results from July are not at all surprising, especially when you contrast them against the surge of buyers who moved to take advantage of the federal tax credit before it expired at the end of April.
Things do tend to average out over time, and when you factor in the hot spring and the cool summer, THE NATIONAL ASSOCIATION OF REALTORS® still expects annual sales to top the 5 million mark this year, which still compares favorably to the 20-year average of 4.9 million.
When we look at sales by region last month, sales in the Midwest fell the hardest, down by 33 percent compared to last July. Sales were down 30 percent in the Northeast, 23 percent out west, and down just under 20 percent in the south.
When we look at prices, the news is much better. The national median price for all housing types last month was 182-thousand, 6-hundred dollars – up 7-tenths of a percent from a year ago.
Prices have been flattening out all year, thanks to the tax credit, and with very little new home construction taking place to compete with existing home inventory, we really don’t expect prices to fade much, if at all.
By region, prices performed the best in the Northeast in July, up nearly 5 percent. Prices were also up in the West by about 3 percent , while they fell by that same margin in the Midwest and South.
So where do we go from here? Well, inventory levels are rising at a time when sales are expected to remain soft, and that does tend to favor buyers, but THE NATIONAL ASSOCIATION OF REALTORS® believes the big price corrections for most homes have already taken place. The next big question concerns what will happen in the last quarter of the year. Job creation has been lagging lately, but between the rock-bottom mortgage rates and really affordable buying conditions, sales could recover quickly, just as soon as the economy starts adding jobs again.
The Role Of Home Buying In The Economy
Those of you who are sports fans will certainly remember baseball legend Reggie Jackson. Now, Reggie is a Hall-of-Famer, but he’s never been known for his modesty. In fact, shortly after joining the New York Yankees, he told a reporter , “I’m the straw that stirs the drink”. Essentially, Reggie claimed he was the force that would determine the fate of the Yankees. That didn’t endear him to his teammates, but a couple of months later, Reggie silenced his critics by leading the Yanks to a world championship.
Now, what’s that got to do with real estate? Well, as you know, we’re taking measure of economic conditions this week. And in a very real sense, home sales really are “the straw that stirs the drink” when it comes to the US Economy. The stock market rises and falls on information about housing starts, existing and pending home sales, manufacturing of construction materials and other goods and services directly related to the American home.
In fact, about 10 percent of the nation’s economic output is related to real estate, and considering that our homes are, by far, the largest investment most of will ever make, the peaks and valleys of the real estate industry really have a profound impact on our own personal wealth.
Just consider for a moment the housing market’s role in driving America. The US economy is driven on growth and consumption. When we have money, we’re encouraged to spend it, and given that there’s no better investment, when times are good and pockets are flush, consumers buy homes.
As more homes are bought, demand rises, and supplies need to be replenished, which means more construction. To build those homes, more jobs are created, and there’s more demand for more building materials, which provides a boost to manufacturing. With more factories making more materials, even more people have jobs. And those people need places to live, too, so the cycle goes on and on and on.
And we’ve really just scratched the surface. When home sales prosper, banks are able to write more loans, and make more money. The demand for more homes creates demand for more furniture, more appliances and more services, such as landscaping and housekeeping, painting and plumbing. And it creates ancillary retail and other businesses, from gas stations to restaurants to supermarkets to dentist to telephone and cable TV service. Of course, growth also creates the need for more government support – Schools to educate our children, police and fire departments to protect our homes, and agencies to take our trash and plow our streets.
All of those government services are funded, in good times and bad, by taxes. During times like these, many states and towns are raising taxes and cutting services just to get by. And, given how much the economy depends on the financial health of homeowners, is it any wonder the federal government is trying, for better or worse, to respond to the financial health of homeowners?
Appearing recently on the PBS Newshour, Treasury Secretary Tim Geithner told host Jim Lehrer …
Those actions include the federal home buyers’ tax credit, which THE NATIONAL ASSOCIATION OF REALTORS® agrees was responsible for stabilizing home prices in recent months.
It remains to be seen just how effective the government can continue to be in the continuing recovery of the housing market, but if we’ve learned anything from the nation’s financial crisis; it’s that the nation really does depend on home owners to remain home owners. It turns out we really ARE “the straw that stirs the drink.”
Crumbs of Optimism
There’s no hiding the fact that optimism has been taking a beating this summer. Consumer confidence is in the tank, jobless benefits are on the rise, and as we’ve told you, home sales suffered a big drop in July. We’ve all heard about the potential of a double dip recession, and if you pair the words “economy” and “optimism” together on Google, you’re not going to find much to read about.
And yet, even under the most barren of landscapes, if you practice enough patience and persistence, you will find a seed or two of hope to sustain you through these troubled times.
We hear so much about people who can’t afford their mortgages or who can’t find a job or who can’t manage their debt, that we forget that the fact that the vast majority of us are still gainfully employed, well-fed and have roofs over our heads. Yes, some of our investments have taken a beating. Our IRAs and 401K plans are certainly nothing to brag about. But those are called long-term investments for a reason. They, at least, have a decent shot at long-term recovery. In the here and now, the fact remains that the great recession has been an event more witnessed than experienced by most Americans.
The vision has certainly been frightening at times, but President Franklin Roosevelt was right when he told the nation during the Great Depression that “the only thing we have to fear is fear itself”. Fear is what keeps us on the sidelines, and in a nation where 70 percent of the economy comes from consumer spending, we all really need to take a collective chill pill.
The fact is, while the U.S. economy is hardly setting anything on fire, it is still growing – up 2.4 percent in the second quarter of the year. Progress is progress, no matter how small, and two former Treasury Secretaries – Robert Rubin, who served under President Clinton , and Paul O’Neill, who was in the most recent Bush Administration – both told CNN this month that they see that slow and bumpy growth continuing.
That growth will be pushed along as consumers have more money to spend, and perhaps the record low mortgage rates can help with that. Have you seriously looked into refinancing your home? Mortgage rates are at record lows, and if you could drop yours by even just a percentage point, you could save hundreds of dollars a month – money that could be poured back into the economy. And yes, we know there are millions of you out there whose loans are now larger than the value of your homes, but for many of you, there are government-backed programs to help you get lower rates.
And here’s one more piece of good news for consumers. Gas prices are falling again. They’re down about a nickel in the past two weeks, and the Oil Price Information Service is projecting another sizable drop after Labor Day, perhaps as much as 15 cents a gallon. Those pennies quickly add up to dollars, dollars that can be spent one way or another. Whether you’re reducing your debt, or buying more products, you’ll be helping the bottom line.
And perhaps the bottom line for all of us these days is that we need to be brave, we need to spend wisely and most of all we need to be patient.
Las Vegas - Bus Tour
THE NATIONAL ASSOCIATION OF REALTORS® 2011 Home Ownership Matters Bus Tour has been all across the nation...