Let's Get The Buyers Off The Fence (aka I met Lawrence Yun, his presentation was realistic yet upbeat!)

Yesterday I had the wonderful opportunity to meet NAR's Chief Economist, Lawrence Yun at the Virginia Peninsula Associate of Realtors (VPAR) General Membership Meeting.

He gave an excellent presentation that I found to be rather refreshing.  It was neither the "doom and gloom" of the media in general nor the "NAR cheerleader" mentality that he (and other NAR members and supporters) have been accused of.  He was very realistic in his presentation of the current state of the economy and the housing market, the issues that brought us here and what the future holds. 

Dr. Yun talked about the new economic stimulus package and some of its various components.  One of the main concerns is the need to remove the repayment feature of the current Home Buyer Tax Credit of $7500 (which he felt had a very good chance of being implemented) and making it available to all home buyers, not just first time home buyers (which he didn't believe had quite as good a chance).  He also spoke on the need to bring the interest rate down and to increase FHA and VA loan limits.  And the need to address foreclosures, although preventing foreclosures alone will not work to move inventory.

Some other areas that need to be addressed are loosening restrictions on investors, who are a key component in reducing inventory.  And also the need to address property insurance issues as many companies have either stopped issuing new policies or have drastically increased premiums, especially in coastal areas.

The housing market is the key to turning the economy around and buyers are the key to turning the housing market around.  But despite the dropping home prices and very low interest rates, buyers are still hesitant.  More action needs to be taken to help ease the buyers off the fence.  Buyers need to understand that the bubble market (and subsequent crash) was only in limited areas.  Most areas had more modest price booms.

For example, this first chart shows the comparison between Columbus, Ohio (green line) and Ft. Myers, Florida.  You can see how Columbus shows a steady increase with a small corresponding decrease starting in 2006.  Ft. Myers on the other hand, obviously peaked sharply and fell just as sharply.

 And in this chart comparing Hampton Roads, VA to Washington DC, we can see that the price difference between the two areas stayed fairly consistent until 2002 when both areas experienced a rise in home prices.  However, the DC area had a far greater increase resulting in nearly triple the difference at the peak of the market.  In 2008, it shows the prices starting to converge back to a more normal variance.

Another rather interesting point is that in 1998 the monthly mortgage payment percentage of a median income household was 19%.  The monthly payment in 2008 was....... 19%.  This was because although home prices are higher, mortgage rates are significantly lower.  Thus further drastic drops in pricing will result in an overcorrection which could lead to further credit crisis.

Current credit guidelines have become too stringent.  In the past we lent money to people "you would never loan $20 to".  Not only were lenders giving money to just about anyone (no money, no credit, no problem), consumers were buying homes way beyond their means. Everyone seemed to have forgotten that "becoming a homeowner not only requires financial responsibility but also a certain level of mental responsibility."  But now we've gone to the other extreme and even buyers with strong credit are having difficulty obtaining financing today.

SO WHAT DOES THE FUTURE HOLD?

New housing starts are in the tank, foreclosures will continue throughout 2009 and we face a trillion dollar plus deficit.  However, with the implementation of the new economic stimulus package, existing home sales should slowly increase 10-20% in 2009 which more activity noticeably in the second half.  So yes, there is a light at the end of the tunnel.

Our country has been overtaken by fear.  Fear of what the future holds, fear of further collapse of the market, fear of recession, fear of further personal financial loss.  The problem with fear is that it is insidious and self propagating.  It is important that we, as Realtors, help educate people in understanding the housing market and our local market in particular (yes all real estate is "local").

To sum up what I got out of the presentation (besides all the terrific information).... 

Yes there are still tough times ahead but if we keep our chin up, stay informed (not misinformed) and continue to provide the best service we can to our clients, we - our clients, us, our country - will come through this a little "battle worn" but also a little wiser. Yes, this too shall pass.