In This Issue:
- Housing Most Affordable in Nearly a Generation
- Housing Numbers a Mixed Bag; Challenges Remain
- Ready or Not, “Fundamental Change” Coming to Mortgage markets
Real estate investors looking for positive signs that the market has rebounded and is on the verge of embarking on a sharp upward climb will surely be disappointed by the latest housing data. At best, the most recent numbers show the importance of having reliable information upon which to make investment decisions.
While there are plenty of reasons that real estate isn’t moving, affordability isn’t one of them. In our first article we delve into the historic nature of the low prices currently available in the real estate market — and explain why people still aren’t buying.
Despite dramatic improvement in the real estate market compared to the darkest days of the real estate bust, there is still a lot of room for improvement. Significant challenges remain that could play a role in the market not roaring back to life as quickly as hoped. Our second article details what some of those challenges are, and that there is still room for optimism despite the market uncertainty.
Treasury Secretary Timothy Geithner and the rest of President Obama’s economic team have been working hard trying to devise ways to improve the market with better oversight of Fannie Mae and Freddie Mac. In our third article, we explain what changes could be looming on the legislative front — and how those changes could impact your real estate investing business.
Housing Most Affordable in Nearly a Generation
The numbers don’t lie: Real estate is the most affordable it’s been in nearly a generation, although the historic nature of its affordability hasn’t sparked a stampede of buyers eager to jump into the market and take advantage of low prices.
While there are still isolated pockets where real estate prices remain very high, most markets — in large cities and small — have prices within reach of the average family. The National Association of Home Builders/Wells Fargo Housing Opportunity Index, long considered an excellent gauge of housing affordability, showed that real estate was affordable to a near-record 72.3% of all homebuyers in the second quarter — just below the all-time record of 72.5% during the first quarter of 2009.
Among large markets, Syracuse, NY led the nation in housing affordability, with a 97.2% affordability rate. Springfield, Ohio topped the smaller market affordability list, with housing being affordable to a still-impressive 96.6 percent of homebuyers.
Even though housing is extremely affordable, buyers aren’t yet flocking to the market in hopes of snapping up real estate bargains. Fears for the future, economic and employment worries, and persistently tight credit are cited as reasons for the sluggish housing recovery.
The lure of affordable housing may be beginning to entice would-be homebuyers to re-enter the housing market. While the uptick in real estate activity is slow, the pace is expected to pick up in the coming months as economic fears are quelled and buyers begin taking advantage of low prices and very low interest rates.
Housing Numbers a Mixed Bag; Challenges Remain
The Federal government’s Housing Scorecard shows that significant strides have been made in recovering from the real estate downturn, but that the recovery of the market is expected to at times be uneven. Buried within the administration’s report of a steadily improving housing market is data that suggests that all is not well in the housing market and that many challenges do remain.
Among the good news cited in the Housing Scorecard was data revealing that:
Regional price stabilization has fueled optimism that conditions are improving. Real estate prices fell off a cliff — and the sharp downward trend continued for 30 straight months. That trend has reversed itself and prices are now stable. There is increasing optimism in multiple sectors that the stabilizing prices will continue improving, and that in the near future prices will begin to rise.
Modifications are twice as prevalent as foreclosures. While stories of rampant foreclosures continue to make the rounds on major media outlets, one of the untold stories has been the relative success enjoyed by participants in mortgage modification, loss mitigation and early intervention programs.
Housing counseling is working. Homeowners facing uncertain financial futures have more than just unpaid mortgages. Other credit obligations have many of them stretched to the limit — and 4.2 million have received HUD-approved counseling since April 2009.
HAMP modification program improvements are streamlining the process for eligible homeowners. While the speed with which modifications can be completed has slowed considerably, program improvements are locating more eligible homeowners, which is improving the effectiveness of the program.
While the numbers show stabilization and improvements in the real estate market, there are still hundreds of thousands of homeowners who owe more on their homes than the properties are worth. This is a compelling reason to be cautious about the future of real estate in the near term because recent history has shown that homeowners left with very few options will do what they believe is in their best interest — regardless of the ramifications those decisions might have for the national real estate market.
Ready or Not, “Fundamental Change” Coming to Mortgage Markets
Treasury Secretary Timothy Geithner is convinced the mortgage markets are broken – and he has ideas on how they should be fixed. Instead of incremental change, Geithner has laid out what he believes are “fundamental” changes that will improve the market and ensure its solvency for the log term.
Although there are many opinions about what should be done, Geithner is trying to build consensus for the implementation of his plan to make mortgage credit available to the masses and support affordable housing initiatives. The Treasury Department recently hosted a housing conference with 12 panelists cherry-picked by the Treasury Department to discuss housing and to discuss the best ways to positively impact the housing market.
Some of the issues discussed include:
The proper role of government involvement in mortgages. Secretary Geithner and the panel seemed to agree on all major points, including the idea that the Federal government needs to be involved heavily in the mortgage industry. While the degree of agreement varied, all panelists are convinced that the government must be involved in mortgages and that – without government involvement – mortgage rates could be considerably higher than they are now.
What role – if any – second mortgages should play in housing. There’s little doubt that Geithner and his team are leading up to big changes in the way second mortgages work because second mortgages can allow homeowners to suck most of the equity out of a property, which leaves the homeowner in a precarious financial position.
The best way to support the growing number of renters. As more and more homeowners work through the foreclosure process, pressure is continuing to be exerted on the rental market. While rental housing is in reach of those with the financial means to pay market rent, lower-income Americans are often left with the choice between paying rent or purchasing other things they desperately need. The panelists focused on the best way to facilitate additional government involvement in this process to ensure that housing remains affordable for all.
Depending upon your political preference, Treasury Secretary Geithner and the panel are either discussing fundamental changes to the housing market to guarantee its long-term health – or are considering changing a system that has worked fairly well for a very long time.
Only the passage of time can determine which is right.