NAR Chief Economist Lawrence Yun

NAR Chief Economist Lawrence Yun predicted home sales would increase by 4 percent next year and home prices would inch up 2 percent during the Economic Issues & Residential Real Estate Business Trends forum Friday morning. In 2013, he projected sales to pick up another 6 percent and prices to rise another 3 percent.

Home-sales growth has been flat this year, even though it couldn’t be a better time for consumers to buy, because prices are still down—essentially under replacement value—and interest rate are at historical lows. Even employment and wages have been heading up, although both at a modest pace.

Yun characterized today’s market as “strange” because of this disconnect between the good buying conditions and the low sales growth.

Rock-bottom consumer confidence is a big part of the weak market but the hurdles to borrowers imposed by lenders through stringent underwriting requirements are a major issue, too. Lenders are requiring applicants to have credit scores of about 760 for Fannie Mae and Freddie Mac loans, and just under 700 for FHA loans, shrinking potential home sales by about 20 percent.

The stiff requirements come at a time when banks are seeing strong profits and run counter to the Federal Reserve’s efforts to use rock-bottom interest rates to attract borrowers and get the economy moving.

Behind the tough underwriting is a concern among banks about borrowers’ ability to repay loans, but Yun says that risk is low. Rather than continuing to head down, home prices have been stable for the last two years and are poised to head up, which will reduce lending risks, lower foreclosures, boost sales, and further strengthen the market.  

To show that home prices have been stable, he cited both NAR and Case-Shiller data, which show prices have been hovering around a $140,000 national median since 2009.

Yun said it was crucial that the federal government not stymie what little momentum the housing market is seeing by moving forward with a proposal to require 20 percent down payments from home buyers or making other destabilizing housing policy shifts. It’s also crucial for interest rates to stay low, although if lenders return their underwriting to the sound standards they used before the housing boom, he said, the market could handle higher interest rates.  

Richard Peach, senior vice president at the Federal Reserve Board of New York and the other speaker at the session, offered a unique suggestion to improve the housing sector, one that was particularly suitable for Veteran’s Day: help military personnel who served overseas purchase foreclosed homes.

“My idea is to allocate certificates to 2.5 million service members who served in Afghanistan and Iraq that could be used as a downpayment on a foreclosed home in the Fannie or Freddie portfolio,” Peach said.

According to an article on Time’s Moneyland, there are three different treads that are aligning that figure to produce a major home-price boom over the next 20 years:

1. The Economic Cycle. Admittedly, the current recession is far worse than a typical cyclical downturn. Nonetheless, the economy has grown for seven straight quarters. It is possible that there could be a double-dip recession – triggered perhaps by the default of Greece or Portugal. But the worst damage to the U.S. economy appears to be behind us. Home prices are largely driven by demand, which depends on the number of people working, their prospects for salary increases and the availability of credit for mortgages. All three of those things are bad right now, but they typically lag the economic cycle for GDP. Once the economy finally recovers, the factors that drive housing demand will follow.

2. The Real Estate Bust. The collapse in housing prices has destroyed confidence among home buyers and left perhaps a quarter of all properties worth less than the mortgages they carry. But the experts see prices within 5% to 10% of a bottom. Once the process is done, prices will have been knocked all the way down. As a general rule, the worse the crash in a market, the longer the subsequent recovery can last, because there is nowhere to go but up.

3. The Inflation Outlook. The combination of a cyclical economic recovery and the end of the housing bust is by itself reason enough to buy real estate. But in my view, there is an even more compelling long-term argument – the near-inevitability of higher inflation, as I have argued before. Basically, if the U.S. continued building up debt at its present rate, the country would eventually end up where Greece is today. The reason that won’t happen is that while Greece’s debt is in euros, a currency it can’t control, U.S. debt is in dollars. The U.S. will always be able to pay its debts because the Federal Reserve and the Treasury can simply work together to create more dollars (what people used to call “printing money” in the days before electronic funds).

image courtesy of Inman News

A recent study by MacroMarkets reveals that nearly two-thirds of economist and real estate experts believe real estate is at a “historic turning point.”

More than half of the experts recently polled say they expect national home prices to reach bottom this year and remain stable throughout 2015.

“Despite persistent macroeconomic uncertainty and unprecedented housing market dysfunction, almost two-thirds of the panelists see the U.S. residential real estate market as at an historic turning point,” said Robert Shiller, Macro Markets co-founder and chief economist.

Most of the experts polled said they believe the bottom for housing prices occurred in the first quarter of 2011 or will arrive sometime before the end of the year.

While predictions varied somewhat, on average, panelists predict a 3.52 percent decrease in home prices in the fourth-quarter of 2011 compared to the same period in 2010. They predict then small increases every year through the fourth-quarter of 2015, when prices are expected to rise 3.47 percent on an annual basis.

“No hardwired mortgage down payment requirements for well-qualified homebuyers. Not 20 percent. Not 10 percent. Not 5 percent.”- Inman News

An alliance of dozens of civil rights, real estate, labor, mortgage and consumer advocacy groups, along with a substantial percentage of the members of Congress have been addressing six federal agencies for the past two weeks to convince officials to change their minds about the controversial “QRM” (qualified residential mortgage) proposal that would mandate 20 percent down payments and strict debt-to-income rules.

While the regulatory agencies cannot discuss the proposal, industry sources say the rule writers are getting the message and are believe to back down in their final QRM plan.

“If they don’t back down enough, however, say sources on Capitol Hill, Democrats and Republicans in the Senate and House are prepared to force them to do so with corrective legislation.”

Bipartisan groups of 160-plus members of the House and 40 members of the Senate wrote to the six agencies last week, urging them to focus on sound underwriting, safe loan products, and borrowers’ ability to repay, plus full documentation… not down payments. The six agencies include, the FDIC, SEC, HUD, the Office of the Comptroller of the Currency, the Federal Housing Finance Agency and the Federal Reserve.

In another sign that global tourism is rebounding from the recession, a report released Monday shows a sharp increase in travel spending by Visa card holders. Last year Visa card holders traveling abroad spent 6% more than last year at $31 billion dollars. Interestingly foreign card holders traveling to the USA increased spending 18% from $29 billion last year.

“Despite economic uncertainties, the United States continues to be a major contributor to the global tourism economy, both as a destination of choice and as a critical source of tourism for many countries,” says William Sheedy, Visa’s group president for the Americas.

U.S card holders spent $3.5 billion for Canada travel, making it the most popular foreign    destination for Americans, followed by Mexico and Britain. Looks like Canadians returned the favor spending $9.2 billion for travel in the U.S- a larger amount than card holders of any other country.

The most popular U.S. destinations for foreign Visa card holders were Florida, New York, California, Texas and Nevada. Spending by them increased more than 15% in each state.

Foreign Visa card holders spent more last year in 48 of 50 states. States with the biggest percentage growth last year were North Dakota, 39%; Tennessee, 33%; Utah, 27%; and Wisconsin, 26%.

We hope to continue to see increases in the United States tourism industry especially here in our home state. With recent reports of 9% increases in visitor spending in North Carolina we are confident that a real estate market recovery is also beginning making it a perfect time to buy a vacation home here on the Outer Banks.

OBX Sunrise

It’s exciting to see all the news of better market conditions. Are sunnier skies on the horizon? A recent article on Realtor.org attempted to answer this burning question.

With home ownership rates at a sustainable 66 percent and a projected growth rate of 340 million by 2020, real estate’s long-term prospects remain bright.

Manufacturing output has been rising. The stock market has recovered nicely. Many companies are flush with cash. Consumer confidence has rebounded from very low levels, and jobs are being created.

Against this improving picture, we can expect to see some release of the demand that’s been building up for the last three years. Rising rental costs will also likely tip more renters into home ownership.

Putting these and other factors together, existing-home sales are projected to rise 8 percent to nearly 5.3 million units nationwide this year and possibly to 5.5 million in 2012.

At this level, home ownership is solid, and it’s also sustainable given our level of population growth.

Skies seem to be brightening.

This increase followed a 1.8 percent drop in September and was unexpected based on economists’ estimates for October.   Pending home sales were projected to decrease 1 percent based on the median of 40 forecasts in the Bloomberg survey. Estimates ranged from a drop of 4.8 percent to a gain of 3 percent.

Cheaper borrowing costs, lower prices and more jobs may entice homebuyers in coming months, helping the real-estate market regain its footing after the end of the tax credit caused demand to slump.

Three of four U.S. regions saw an increase, today’s report showed, including gains of 27 percent in the Midwest, 20 percent in the Northeast and 7.1 percent in the South. Purchases fell 0.4 percent in the West.

Another positive is the fact that consumer spending rose 1.7% annual rate for the fourth quater.  The spike in spending contribited 1.2 percent to the total GDP.

The gross domestic product expanded at an annual rate of 5.7 percent increase the fourth quarter.  This is great news, but experts are a little skeptical on the economies’ long term pace of growth.  The growth rate in this quarter was the fastest growth since the third quarter of 2003. 

The Obama administration seized on news of the latest upturn as an opportunity to push its proposal to encourage hiring.  Companies would receive a tax credit of up to $5,000 for each new hire, and an additional credit on Social Security payroll taxes for raising wages — by increasing hourly pay or work hours, for example — in excess of inflation.  “Now’s the perfect time for this kind of incentive because the economy is growing, but businesses are still hesitant to start hiring again,” President Obama said in Baltimore.  

Up to this point, the economy has still been able to grow despite substantial job cutbacks across the nation.  Productivity of employees has increased 8.1% in the third quarter of 2009. It was also evident that businesses are spending more on technology in order to increase employee productivity. 

 • Change in tax revenue
N.C., -7.6%; California, -16.2%;

• Size of budget gap
N.C., 21.9%; California, 49.3%;

• Change in jobless rate
N.C., up 5 percentage points; California, up 4.6:

• Foreclosure rate
N.C., 0.65% California, 2.02%;

• Fiscal management grade
N.C., B-; California, D+

Other states with high misery scores were Arizona and Rhode Island, both scoring a 28, Michigan , 27; and Florida, 25.

States’ revenue data was from Q1 2008 to Q1 2009; budget gap data, is for fiscal 2010 through July; unemployment, Q2 2008 to Q2, 2009; and foreclosure data, Q1, 2009