FOUR CORNERS — It seems like with every new report on the U.S. housing market, there’s some good news mixed in with another negative statistic.
The Census Bureau reported on Monday that home sales in October rose 1.3 percent above September, even though housing economists had predicted a decline. But the same report indicated that prices keep falling.
The Census Bureau also reported that sales for the month were 8.9 percent above October 2010, but the volume of sales was just 307,000 units – low by historic standards, which should be closer to 750,000 sales per month.
In a similar trend, the National Association of Realtors says there’s pent up demand for buying a home — but the challenge is getting the financing, said Walter Molony, spokesman for the association based in Washington D.C.
Although sales rose and volumes remain low, Molony said it’s too early to call this a clear trend.
“First, the report on new home sales is a very volatile number,” he said. “It takes four months to establish a trend. That said, the residential sector is expected to be improving. We’re looking at stronger growth next year of 4 to 5 percent.”
The reason NAR seems optimistic, Molony said, is because there have been so few new households formed in the past three years. In other words, people have not been buying a home for their families, they’ve been renting, or in some cases, simply doubling up with others because it was all they could afford to do.
But the fact that home prices have come down so dramatically since the peak in 2005-2006, he said, means there literally has never been a better time to buy, as compared to renting.
“On the residential side, the ownership side in particular, we’re looking at a number of factors,” Molony said. “The two biggest ones are the increase in affordability and the pent up demand. In the past three years, we had a dramatic slowdown in household formation, less than half the normal households you’d expect. Instead we saw a lot of kids doubling up, moving back in with their parents, or moving in with roommates. That has yielded demand in the apartment markets.”
It also means fewer apartments available, prompting some potential buyers, he said, to ponder whether it might make more sense to buy than rent.
“As those vacancy rates continue to trend down and rates continue to decrease, in much of the country today it is cheaper to purchase a property than to rent it,” he said. “Those that have secure jobs and have a long term view, our research indicates the typical buyer is planning to stay in their home for 10 years. All of those point to favorable factors for home buying next year.”
The major headwind working against it, Molony added, is what he called “unnecessarily stringent underwriting standards” by the banks and mortgage companies, making it increasingly difficult for prospective buyers to get the financing they need.
“The banks have been giving mortgages to the cream of the crop, and declined loans to a lot of potential buyers willing to stay for years in those homes,“ he said. “That’s hurting the market. We project if you just returned to sound, sensible underwriting standards, looking at debt ratios and making value judgments about a person’s ability to stay in their homes, just returning to normal standards would cause sales to rise 10 to 15 percent. The market could be better, but it will be doing better. It’s a slow healing process.”
Florida remains one of the nation’s hardest hit states, in part because so many new homes were built at the height of the market in the past decade, leaving the Sunshine State with a high number of foreclosed homes and a painfully high inventory of unsold homes. Prices have come down dramatically since the peak, in part because so many of the properties on the market were either homes in foreclosure or were short sales, where a seller is asking for a lower price than what they owe on the mortgage, in the hope that their lender will accept a partial payoff and write off the remainder of the loan.
The good news, said Four Corners Realtor An Flamand, is that foreclosed homes and short sales no longer make up the biggest bulk of properties on the market today.
“Those short sales bring the prices down tremendously,” said Flamand, who runs USA Vacation Homes at Polo Park in Davenport. “The good thing is there are not that many short sales and foreclosures in our area now. It used to be 90 percent of the market, but now it’s maybe 10 percent.”
The Four Corners real estate market — where the counties of Lake, Orange, Osceola and Polk come together at U.S. 27 and U.S. 192 — grew enormously in the past decade, a reflection of the building boom that occurred here when there was a seemingly insatiable appetite for newly-constructed homes. The area suffered along with the rest of the state when the housing market collapsed, and the main buyers for the area now are foreigners looking for second homes or investment properties. But Flamand said a lot of them are turning to Spain instead, where prices are even lower.
“It’s usually foreigners who buy here, but right now in Spain, it’s cheaper to buy,” she said. “I think that comes in play as well when people buy over here.”
As a result, the local housing market remains sluggish, she said.
“It has been very slow,” Flamand said. “I have a few listings of homes, and where we used to have six calls a day after a listing went up, now we get maybe one call a week. I haven’t seen any improvements in the last few months.”
That may change next year, Molony said.
“That has been a trend for the past three years, and it’s starting to change now,” he said. “It’s starting to unleash with people going from a rental to home ownership, as some renters are looking at record high affordability conditions, and that’s why sales are trending up,” he said. “The market could be recovering at a much faster rate. And Florida is coming back.”
Flamand said it is possible that as sluggish as the market is today, it could pick up quickly.
“It’s kind of weird how markets change so radically,” she said. “My prediction was that we would be back to a normal market already. Five months ago, it looked like that was going to happen, but then it slowed down again.”
A lot of that, she said, was based on fears about the growing debt crisis in Greece and Italy, and whether that would push Europe, and then possibly the United States, into another recession. So far that hasn’t happened, but the fear factor was real, and holding people back, she said.
“It might also bring a scare to people,” Flamand said.
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