BLOG VIEW: If you believe in numbers, real estate sales should be soaring. Interest rates are below 4%, yet home prices nationwide have still not reached the 2007 peak – two facts which should elate home buyers.
Many economists, Wall Street analysts and deep thinkers are certain the Federal Reserve will push rates higher this year, reason enough to encourage borrowers to finance and refinance before historically low rates disappear. Moreover, with easing credit standards there's a lot of reason to believe that 2015 should be a banner year.
But if this is a buyers' market then where are the buyers? In 2014 – also a wonderful year to be a purchaser – existing home sales actually fell. Sales to first-time buyers are down roughly 25% from historic norms, a sign that should worry everyone.
What we're seeing in the real estate market is not a housing problem. The opportunities to buy are plainly there, but across the country sales are being held down because income and employment remain substantial worries.
On the income front, wages continue to lag and lag badly. Corrected for inflation, 2013 household income was 8.7% lower than in 1999. according to the U.S. Census Bureau.
Real estate values have been rising nationwide but such increases – while highly desirable for sellers – are a hurdle for would-be buyers. According to RealtyTrac, between 2012 and 2014 home values increased 17.31% while wages rose by a meager 1.3%, a ratio of better than 13 to one.
Meanwhile, for decades unemployment numbers have not fully reflected real-world job numbers. For instance, the U.S. Bureau of Labor Statistics (BLS) reported that in March the unemployment rate was just 5.5% – a fuzzy statistic made possible only by ignoring the 2.1 million people marginally attached to the labor force. And who are these ‘marginally-attached’ folks? According to the BLS they are individuals who ‘wanted and were available for work, and had looked for a job sometime in the prior twelve months. They were not counted as unemployed because they had not searched for work in the four weeks preceding the survey.’
Given that these problems are outside the housing sector is there anything the brokerage community can do to encourage a stronger real estate market?
Part of the problem is confidence. Buyers, not unreasonably, would like some evidence that they are not buying into the next mortgage meltdown. Happily there are some objective market developments to which brokers can point in 2015.
First, the mortgage system is substantially more secure. ‘While it's harder for home buyers to qualify for a mortgage under new federal rules which require lenders to verify a borrower's ability to repay the loan,’ explains Rick Sharga, executive vice president at Auction.com. ‘The loans that are being written today are defaulting at rates that are only half of what we've seen historically. So there's very little risk of another financial disaster caused by faulty lending practices.’
Second, conforming loans can now be had with as little as 3% down, a big change from the former 5% requirement.
Third, the annual mortgage insurance premium for most FHA-backed products has been reduced by 0.5%. That's a savings of roughly $750 in the first year for a $150,000 mortgage.
Fourth, home prices are generally up in most metro areas – but not all. According to NAR, values in 150 out of 175 metropolitan statistical areas (MSAs) rose in the fourth quarter of 2014 when compared with a year earlier. However, median prices fell in 24 areas. To be credible it's important to mention both that prices are rising in most areas but also falling in some – and to know how local markets are performing.
Fifth, interest rates at this writing remain below 4%, a remarkably low figure by historic standards.
Given a growing population plus the potential return of millions of ‘boomerang’ buyers once shut out of the market because of past foreclosures and short sales, more real estate transactions in 2015 are entirely plausible – especially when buyers have a better understanding of today's new market.
Peter G. Miller is a nationally syndicated real estate columnist. His books, published originally by Harper & Row, sold more than 300,000 copies. He blogs at OurBroker.com and contributes to such leading sites as RealtyTrac.com, the Huffington Post and Auction.com. Miller has also spoken before such groups as the National Association of Realtors and the Association of Real Estate License Law Officials.
(Do you have an opinion to share with MortgageOrb? Get in touch! Send an email to pbarnard@zackin.com.)
