Sellers Need to be Motivated and Realistic

‘Housing Market is Struggling to Recover’

August 23, 2011 ·

By Katherine Tarbox, Senior Editor, REALTOR® Magazine
While the stock market continues its wild ride and as things begin to look gloomy for Europe, NAR Chief Economist Lawrence Yun is optimistic that the conditions needed for a housing recovery are present in today’s economy. “The market is trying to gain traction,” Yun told an audience of association executives at the National Association of REALTORS® Leadership Summit in Chicago today. “It’s not a nice recovery, but rather a struggling recovery. It’s frustrating.”
He noted that while GDP grew less than 1 percent in the first half of 2011, which indicates that the U.S. is on the brink of another recession, the number of jobs is increasing — albeit slowly. Consumers spending is also up. Last week, the U.S. Commerce Department announced that retail spending was up 0.5 percent in July. This small shift in the job market should force some sales, said Yun, as should the fact the affordability is high and rent prices are beginning to soar.

However, Yun said that buyers are still hesitant to purchase while the economy is fragile and he believes that many deals are falling through because of financing.  Yun estimates that if Fannie and Freddie lowered the credit score required for first-time home buyers from 762 to 720, that housing sales would increase from 15 to 20 percent.
What would hamper a housing recovery would be any hurdles Washington puts in the way such as requiring a QRM (Qualified Residential Mortgage) with a down payment of 20 percent.  In addition, any slash to the MID (mortgage interest deduction) could have ripple effects on the economy.  If Washington removed the MID from second homes, Yun says that would hurt workers in resort towns who rely on that industry.
Yun also discussed his concern about the ability for small businesses to launch, as housing equity has traditionally provided funding for start-ups.  In this economy, small business lending has been difficult to impossible, he said.  The good news is that housing equity remains stable.
North Dakota and south Florida are two bright spots to look at, according to Yun.  North Dakota has a steady job market that has lead to a budget surplus for the state.  In south Florida, prices have gone so low that investors are buying and prices are beginning to increase.

It's a Tough Time to Sell

Economic Woes Prompt Buyers to Back Out of Deals

• Posted by Glozal on August 22, 2011 at 2:00pm

Recent falls in the stock market and growing concerns over the cloud hanging over the U.S. economy has prompted more home buyers to cancel real estate deals or continue to sit on the sidelines, analysts say.
The National Association of REALTORS® said in a recent report that home buyer cancellations in the last two months increased about 10 percent from a year earlier. Lawrence Yun, NAR’s chief economist, says the increase is due to low appraisals that do not match the mortgage amount, “overly stringent” lending standards, as well as waning buyer confidence.
“The typical home buyer gets rattled when confronted with economic turmoil,” says Stan Humphries, Zillow.com’s chief economist. “The type of fear we’re seeing could substantially worsen the housing market.”
Stock market declines are denting many buyers’ pocketbooks. “A lot of people have seen their down payments for a home disappear in the stock market,” Keith Gumbinger, vice president of HSH Associates, told Bloomberg News. “It served as a reinforcement to the hunker-down mentality that a lot of home buyers already had.”
Some home buyers who still have the means to buy are waiting for prices to fall even further too, says Jim Hamilton, with Lyon Real Estate.
“People are watching the stock market as a major indicator of what’s going on in the economy,” Hamilton told Bloomberg News. “Buyers are beginning to think that if they wait, they’re going to get a better deal in a few months.”

Even Low Interest Rates Can’t Get Buyers Moving

Despite borrowing costs at record low levels, applications for mortgages to purchase homes continues to fall. In fact, for the week ending Aug. 12, mortgage applications to buy dropped to a 13-month low, according to the Mortgage Bankers Association.
Federal Reserve Chairman Ben Bernanke was hoping to revive demand for housing by lowering interest rates and vowing to not raise key rates until 2013. Rates have been below 5 percent for more than two weeks but have failed to spark more buying.
“Low mortgage rates are only helpful to home buyers who aren’t paralyzed with fear after watching their 401(k) disappear,” says Mark Goldman, a lecturer at the Corky McMillin Center for Real Estate at San Diego State University. “For now, people see the stock market as a casino table.”

The Buyer's Market Continues...

Buyers to sellers: Just how low will you go?

• Posted by Glozal on August 23, 2011 at 7:30am

NEW YORK – Aug. 23, 2011 – Low-ball offers from homebuyers seems to be the norm these days. But as economic and stock market woes continue, some buyers are using it as an opportunity to submit even lower offers.

“Buyers are going to use every point of leverage they can to get a lower price,” Glenn Kelman, chief executive of Redfin Corp., told The Wall Street Journal.

For example, homebuyer Ryan Goodman says he reduced bids on two homes he submitted in Barrington, Ill., because of the stock markets plunge. He and his wife had originally offered $680,000 for a home listed at $800,000, and this week submitted a new offer of $650,000.

“Unless we get a steal, we’re not going to buy any house,” Goodman says.

Analysts say that the Federal Reserve’s vow to keep short-term interest rates near zero until 2013 has reduced the urgency of buyers. It gives buyers “comfort that they are not missing out on low interest rates if they wait,” says John Burns, a home-building consultant in Irvine, Calif. “That has tilted even more power toward homebuyers.”

Rental Investors take note...

New-home sales fell 0.7% in July

• Posted by Glozal on August 23, 2011 at 6:11pm

WASHINGTON (AP) – Aug. 23, 2011 – The number of Americans who bought new homes fell for the fourth straight month in July, putting sales on track to finish this year as the worst on records dating back half a century.

Sales of new homes fell nearly 1 percent in July to a seasonally adjusted annual rate of 298,000, the Commerce Department said Tuesday. That’s less than half the 700,000 that economists say represent a healthy market.

Housing remains the weakest part of the economy. Last year was the worst for new-home sales on records dating back a half century.

While new homes represent less than one-fifth of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs and $90,000 in taxes, according to the National Association of Home Builders.

But all sales remain weak. Sales of previously occupied homes fell in July for the third time in four months, and they are trailing last year’s 4.91 million sales, the fewest since 1997. In a healthy economy, people buy roughly 6 million existing homes annually.

High unemployment, larger required downpayments and tougher lending standards are preventing many people from buying homes.

Plunging stocks and a growing fear that the U.S. could tip back into another recession are also keeping people from entering the troubled housing market.

A report last week on sales of previously owned homes showed that more sales than usual fell apart at the last minute, a sign that many buyers may be nervous about the economy. At least 16 percent of deals were canceled ahead of closings last month – four times the rate in May.

Foreclosures and short sales are forcing down prices. A short sale is when a lender accepts less than what is owed on the mortgage.

Those homes are selling at an average discount of 20 percent, and they lower neighboring values. That’s made many re-sales a bargain compared with new homes, creating an average 30 percent disparity in prices.

Sales of new homes have fallen 18 percent in the two years since the Great Recession officially ended.

A telling sign of how bad things have gotten for the housing industry: Prices have dropped more since the recession started, on a percentage basis, than during the Great Depression of the 1930s.

And it took 19 years for prices to fully recover after the Depression.