Each month Realtors® provide data and comments in responding to the Realtors® Confidence Index Survey. The November edition, with data current as of late October, summarizes a number of major issues mentioned by Realtors®, mainly focused on mortgage availability and lending standards, appraisals, and foreclosures. Of particular interest was the Realtor® experience in the closing process: 47 percent of Realtors® reported on-time settlements, down from the 65 to 70 percent range reported in previous months.
Problems with obtaining mortgages along with appraisal and inspection problems were mentioned as causes of settlement delays and cancellations.
- Appraisals continue to be a problem – Respondents report that appraisals are coming in lower in many cases than the contract. In addition, appraisals are frequently late, slowing down or sometimes even terminating the proposed transaction.
- Lending – Obtaining a loan is reported as difficult: excessive/unreasonable documentation requirements, delays, and rejections of buyers who would normally be considered credit worthy are mentioned as issues. Loans for condos are even more difficult, and frequently unavailable.
- The major economic issue: JOBS – Without jobs and with concerns about the expectation of continued employment, potential buyers just are not in the market. Realtors® reported substantial concern over the current economy as well as perceptions by potential buyers that the economy is not improving. Consumer confidence was reported as down substantially with major negative impacts on potential transactions.
- Prices – Problems of potential sellers currently upside down in their mortgages were mentioned as major market impediments as well as buyer concerns about declining prices.
- Foreclosures and short sales – Continued to be seen as major market negatives.
- Property condition – Mentioned as exceptionally important in the current market, along with anything that makes a first impression.
- All Real Estates Is Local – In some areas of the country the market was reported as improving – consistent with NAR’s reports that some major metropolitan areas are starting to recover.
General Market Trends
For the past three years the residential markets have been fluctuating – modest increases and decreases around the current level of sales. After declining from its peak, price has fluctuated substantially from month to month, but over the three year period has been relatively flat as reported by NAR and Case-Shiller. We essentially have a residential market that is moving sideways, influenced heavily by the approximate 33 percent of transactions that are distressed sales.
The major impediment to increased sales appears to be the overall jobs picture. The economy needs to add approximately 125,000 jobs on a monthly basis in order to stay even – and we need substantially more job additions every month in order to decrease unemployment. Right now the economy is experiencing very modest growth with job creation frequently below the 125,000 figure. It appears that the combination of financial problems (both domestic and worldwide) coupled with lowered consumer demand has decreased job creation. Most economists currently see the jobs problem as lasting in the neighborhood of four years.
Current price trends are probably based on a combination of market weaknesses and emotional concerns. At this time overall affordability is near an all-time high in terms of interest rates, price/income relationships, and percentage of income required to support a mortgage. In many cases home prices are reported as below reproduction costs. Current market prices appear to be a function of the weak employment picture and a tendency of markets to overshoot on the way up and undershoot on the way down.
Realtors’® responses in the past few months have basically indicated a sideways moving market. If economic conditions continue to deliver their forecasted modest improvement, then the market recovery will be slow. All real estate is local, so overall market performance will be uneven.
What Does This Mean To Realtors®?
Clients may be concerned about all the negative publicity regarding the housing markets: Interest rates and prices are very reasonable compared to history. NAR surveys indicate that the average homebuyer will stay in their home for seven to nine years, so weekly price fluctuations really are irrelevant. In addition, homeownership needs to be a focus on lifestyle and how one wants one’s family to live. Negative or sensational publicity sells newspapers. “Dog Bites Man” is on page 32 of a 28 page paper; “Man Bites Dog” is front page above the fold. It’s important not to get carried away by irrelevant or sensational headlines. Realtors® sell houses for families and individuals. Prudence in determining the amount to pay is important. However, over the longer run the likelihood of a home purchase proving to be a reasonable expenditure has tended to be higher rather than lower.
Obtaining a Mortgage Is Difficult: Financial institutions have tightened (many would say unreasonably tightened) their lending standards. Credit-worthy buyers are reported as frequently being rejected for loans. Loan rejections may be more related to the overly risky portfolio of loans that a bank has rather than the credit worthiness of the purchaser. Home buyers need to look to regional and community banks, and credit unions when appropriate.
The Market is Better than the News: NAR and Case-Shiller data show that home prices have fluctuated in a band or range for the past few years. Prices have definitely been a concern, but should recover as the job situation improves. The real estate markets tend to move with the economy; right now the economy is slow. However, most economists continue to project ongoing economic growth. In a growing economy real estate has usually done well. Most buyers hold their properties on average for approximately eight years or more, and economists are projecting substantial growth over that time frame. These are the reasons why we say now is a good time to buy. The stock market goes through periods when valuations are low—a buyer’s market. We seem to be in a similar type of market for housing.