Most will agree that the key to ending this downturn is for the housing market to stabilize. Economists say affordability in the marketplace will bring back buyers. Home prices are down 50% and more in some U.S. markets. This is increasing affordability and bringing in buyers, as demonstrated in California's rise in home sales.
The government is doing its part by forcing lower mortgage rates. The question is whether the market should run its course and regain equilibrium naturally (and at great pain to the American citizen) or will artificially lower mortgage rates make the bottom happen and stick.
James B. Lockhart, federal regulator for Fannie Mae (FNM) and Freddie Mac (FRE) since they were taken over by the government in September, said at a housing conference Monday that
Restoring home affordability was key to a turnaround in the housing market. Despite falling home prices, there are still many potential home buyers "on the fence."
Lockhart was referring to lowering mortgage rates through Fannie and Freddie to help affordability.
Robert Toll, CEO of Toll Brothers (TOL) said affordability is the silver lining on the horizon. Even for a luxury homebuilder like Toll, affordability will bring buyers back. From Toll's FQ408 conference call:
Dan Oppenheim of Credit Suisse just published a report noting that “affordability is significantly improved and better then at any time in the past several decades. The mortgage payment on the median priced home now equates to 16.7% of median household income; an improvement of a 430 basis points since this past summer. That’s down from 25.1% when affordability was at its worst in July, 2006 and well below the long-term average of 23% from 1982 to 2007.”
First signs that foreclosures are subsiding. From MarketWatch:
"Recovery is underway. Affordable is back in the housing market," says Alexis McGee, president of ForeclosureS.com. "In 2009, housing will not only recover, but we'll see buyers leap into this market in droves, depleting our housing oversupply, and actually put higher price pressures on the market."
The latest U.S. Foreclosure Index by ForeclosureS.com shows a slight drop from 84,534 to 84,291 in the number of properties repossessed by lenders following foreclosure last month over October. These are REOs or lender-owned real estate. But that's off nearly 21% from September's 106,415 REO filings. (Year-to-date 12.6 of every 1,000 households nationwide have been lost to foreclosure.)
NAR: The latest U.S. Foreclosure Index numbers show November REO filings in California down to 15,978 in November, down 6.55% from October and off nearly 50% from September. Home prices there have come down, too, as much as 39.4% from Q307 in some areas.
Maybe with home prices where they are, the government effort to artificially reduce mortgage rates will be what pushes the market over to the positive side. Time will tell. From Reuters:
The U.S. housing market is very near a bottom for home sales and prices will hit their low in September, Moody's Economy.com economist Mark Zandi said on Monday… "Foreclosure sales, distress sales, are about 40% of the market. Of course, a bad jobs market means we'll have a couple months more of weak sales."
When prices sink, sales rise. From Newsday:
Multiple Listing Service of Long Island, NY: The median closing price fell to $376,500 for Long Island and Queens last month, down from $421,000 a year ago and $385,000 in October.
The November drop represents a 10.6% decrease from a year ago and a 2.3% decrease from October.
"The good news is things are selling but prices have dropped," said Michael Azzato, associate broker at Century 21 Family Realty in Northport.
USA Today on the Fort Worth, TX area:
The metro area is considered affordable. The median home price is now down a bit, so despite the national financial storm, home buyers are moving ahead.
It may not seem that way to Realtors or others struggling to make a go of it in Central Oregon's decidedly cooler home-building industry, but… Global Insight, an economic and financial analysis and forecasting firm, found that… the median home price in the Bend, Oregon metro area was $276,900 in Q3. And it said that price was 43% overvalued, despite dropping from $286,300 from Q2 and $315,100 in Q307 - when the report found Bend home prices were 62.3% overvalued.
