Market Update, Trends

Real Estate Summit: Economy, Jobs, Recovery, Housing

Yesterday, I attended the Washington Real Estate Summit at Emerald Downs, sponsored by the Mortgage Bankers Association and the Washington Realtors. The morning conference covered the economy and when it will get moving again and how, and the afternoon covered the mortgage industry and its new regulatory climate.

Jim Hebert of Hebert Research was the conference’s economic guru (a growth industry these days). He seems to think our economy will bottom out and begin showing signs of recovery on paper in the 3rd quarter of this year. However, job loses will continue into 2010, and turn around then. He maintains that the job situation will turn around when consumer confidence turns around. This makes sense for a consumption driven economy, but sounds like a chicken-and-egg scenario to me. How can consumers become confident when they don’t have jobs? I guess they will when they read the news in the 3rd quarter that economists say the recovery is beginning. Now I see how it works!
But seriously, a 10% unemployment rate, or a 15% real unemployment rate is not good, but the math does say that 85% of the workforce does still have jobs. And these employees are saving rather than spending now. One interesting note Hebert made was our present level of job loss locally is less than the job losses we suffered in the tech crash of 2002.

Bill Riley, President-elect of the Washington Association of Realtors, gave the Realtor-centric view of how housing will lead the recovery because 25% of our local economy is real-estate related. He described that hard work that is taking place by the Realtors and State government to leverage the Obama administration’s expanded $8000 tax rebate for first time buyers, which shows up next year as a tax cut, into $8000 at the closing table, where it will do the most good. This would take form of a short term bridge loan financed by the Realtors and the State, to be paid back at tax time, I believe. Riley said they believe this will bring in 50% more first time buyers than we have now. Very innovative use of my dues. I like it.
Another issue the Realtors are dealing with now is the disconnect between all of the high-density housing that is being built, and the consumer demand for detached single family housing.

Garrett Huffman of the Master Builders described our economy from the residential builders point of view. He aid that 25% of the local builders are out of business. The good news is that pending home sales are up. And builders will be focusing on affordability in the future. I asked him specifically how builders will be re-tooling for our new economy going forward. His answer:

• Different types of housing, more compact, greener.
• More townhouses and condos, and cottage housing is a popular trend we will see more of.
• More Transit-oriented development and re-development of close-in areas.
• More drive-until-you-qualify development, meaning affordable homes in farther away places, for those buyers who find the above development patterns are unaffordable or unworkable.

The presentations on the mortgage industry were more agnst-ridden. The challenges include ongoing problems with:

• fianancing homes with acreage, condos for less than 10% down, waterfront properties.
• higher credit scores required of buyers to avoid premium pricing.
• deteriorating credit scores caused by credit card companies lowering consumers’ credit limits. This lowering many buyers from 720 fico to 680 fico, a big difference.
• lack of available mortgage insurance for lower credit scores
• appraisal industry in upheaval with new regulations, appraisals take longer and are of lower quality.

But, the good news is:

• Obama adminsitration’s  interventions seem to be working. First-time buyers are starting to take the plunge, and the affordable refi program is eliminating a lot of panic sales and helping to stabalize the markets.
• FHA loans are very good, 3.5% down. The USDA programs for rural areas like Monroe are providing 100% financing.
• Jumbo loans are coming back, which will let more borrowers refi, and sell more higher end properties.

The biggest conclusion of the conferrence was what a great time this is to buy for those who can, with low prices, still great inventory, record low interest rates, and a turnaround expected. I agree!