For over a year now Market Watch has focused on statistical information.  I will continue to provide that sort of information on a regular basis.  This month, however, I will step back and take a “big picture” look at the housing market, long term trends, and general advice I would give to prospective homebuyers or sellers.
     Anyone who reads or listens to the media knows that everybody likes to talk about housing and most of them think they are “experts”.  Sensational headlines appear almost weekly and, in my opinion, are not as important as the size of the print.  In other words, one week’s statistical anomaly does not necessarily mean the housing market has changed significantly.  Homeownership is not a get rich quick scheme.  Homeownership works because there are several significant long term benefits.  I believe housing statistics are much more meaningful when viewed on a longer term basis.
     Residential housing has been one of the pillars of the American economy for decades, accounting for about 17% of our economy.  Clearly the housing market is not as strong as it was 3-4 years ago.  It is also true that there are more homes on the market today than has historically been the case. Part of the problem was caused by investors treating residential real estate as a short term investment.  In addition, there are some existing lending and related securities issues that have hurt the housing market.                                  
     All of those things being said, there are several overriding positive aspects of the housing industry that have not changed.  First, housing has long been a hedge against inflation and has historically grown fairly steadily in value.  Second, taking out a mortgage to buy a home essentially serves as a “savings account”.  Paying down a loan is, in many ways, the same as saving money.  Third, housing has significant tax advantages based on the deductibility of both mortgage interest and real estate taxes.  Finally, there are several reasons that housing’s current problems will lessen.  Over the past several years household formation has decreased while population has increased.  This trend is impossible to sustain.  Currently, America’s population increases by one million annually.  Even with this consistent growth there are 2.5 million fewer homeowners that there were in 2004.  When our economy improves, our unemployment rate declines, and foreclosures lessen there will be a significant resurgence in home buying.  When compared to renters, homeowners make more money, are better educated, are healthier, pay more taxes, and donate more to charities.
     The American dream of homeownership has not decreased.  The current rate of homeownership in the U.S. is 66.9%.  Even in today’s market 77% of American’s believe now is a good time to buy a home.  Homeownership has historically, and will continue to be a sound long term investment.  Buyers who sit on the sideline today will have missed a golden opportunity.

Please feel free to call or email me at 812-499-9234 if you have any questions.

Consumer confidence and business spending are key to whether the U.S. housing market will move into a virtuous or a vicious cycle in 2011, NAR Chief Economist Lawrence Yun told a packed audience at the Residential Economic Outlook Forum Friday in New Orleans.

After the downturn, the housing market has clawed its way back to a point of near stability, Yun said, with the pace of new foreclosures easing, sales moving toward historically normal levels and prices on a national basis gaining modestly.

At the same time, affordability remains strong. He said all of the price excesses from the housing bubble have been squeezed out. In San Diego, for example, buyers today would pay $1,564 a month in mortgage payments for a house that at the height of the boom would have cost them $2,833 a month.

The broader economy is also showing positive signs, with businesses enjoying strong profits, sitting on huge cash reserves, and even adding jobs. Yun predicts this positive trend to continue into 2011, with existing home sales reaching 5.5 million units, prices rising a modest 1 percent, and the U.S. gross domestic product increasing to about 2.5 percent.

“We are entering a virtuous cycle,” he said. But for the positive trend to continue, he added, businesses will have to start spending some of their cash to fuel job growth at a far greater pace than they’re doing now. Currently, businesses are adding jobs at a pace of about 100,000 a month. That needs to grow to about 400,000 a month for unemployment
to start shrinking.

The scenario will be far more negative if businesses continue to sit on their cash. In that case, sales will fall, inventories will rise, the high rate of foreclosures will resume, and the cost to the federal government of bailing out Fannie Mae and Freddie Mac will surge.

Federal Reserve Governor Thomas Koenig, who shared the data with Yun, said the Fed’s continued effort to spur the economy, most recently through a $600 billion bond buying program, is understandable given concerns over the slow pace of growth. But the continued subsidization of the market could unleash inflationary forces.

Yun said he sees possible evidence of inflation building, but it’s not visible now because the housing-cost portion of inflation measurements is holding down prices.

—Rob Freedman, REALTOR® Magazine

http://www.realtor.org/RMODaily.nsf/pages/News2010110801?OpenDocument

Property tax caps made their way into the state Constitution Tuesday evening with strong support from Indiana voters (71.6%), cementing the reform package approved in 2008 and bringing certainty to local real estate markets, not to mention paving the way for progress on other important issues.  Thank you, members, for your help this fall bringing attention to the ballot question and bumping up its support within the last week from 65% to 72%

Nearly eight out of 10 respondents believe buying a home is a good financial decision, despite ongoing challenges with the economy and housing market. That’s according to the 2010 National Housing Pulse Survey, an annual report released today by the NATIONAL ASSOCIATION OF REALTORS.®

The survey, which measures how affordable housing issues affect consumers, also found job security concerns to be the highest in eight years of sampling, with 70 percent of Americans saying that job layoffs and unemployment are a big problem in their area; eight in 10 cite these issues as a barrier to homeownership.

“The real issue facing the nation’s economy right now is that many Americans can’t find meaningful work to support their families,” said NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz.
“While a job recovery is what’s needed right now to get the economy and housing market back on the right track, owning a home continues to be part of the American Dream and one of the best long-term investments in your future.”

Despite economic uncertainty, 68 percent of those surveyed still believe now is a good time to buy a home; while that number is down from last year (75 percent), it’s up from 2008 (66 percent) and 2007 (59 percent). Lower home prices and record-low mortgage interest rates may be attracting buyers to the housing market – more than one-fourth of renters said they are thinking more about buying a home than they were a year ago. Sixty-three percent of renter respondents said that owning a home is a priority in their future, and nearly 40 percent said it was one of their highest priorities.

Lower home prices have improved affordability. In fact, the percentage of renters who are worried that the cost of housing is getting so unaffordable that they will never be able to buy a home has decreased steadily since 2007, from 63 to 57 percent.

Despite improved affordability, 79 percent of respondents still consider having enough money for down payment and closing costs to be among of the biggest obstacles to buying a home. Another obstacle is a lack of confidence in their ability to be approved for a loan, reported by 73 percent of respondents.

The good news is that Americans are seeing more stability in the real estate market. Nearly seven out of 10 believe that home values have stabilized in their area; the same number expects home sales to remain about the same through the end of the year.

While more than half (51 percent) say foreclosures are a problem in their area, the rate of foreclosures is also seen as stabilizing; 51 percent say the rate is about the same as last year. Thirty-six percent of respondents cite the recession, loss of jobs and the poor economy as the main reason for the ongoing foreclosure problem. This has also led to a slight increase in the number of people who believe the federal government should take a more active role overseeing loans and mortgages (44 percent, up from 43 percent last year).

While nearly seven out of 10 say it’s harder to sell a home in their area today than it was a year ago, it’s less of a concern from last year when the number was 10 percentage points higher. This is most likely the result of lower home inventories.

The 2010 National Housing Pulse Survey is conducted by American Strategies and Myers Research & Strategic Services for NAR’s Housing Opportunity Program. The telephone survey was among 1,209 adults living in the 25 most populous metropolitan statistical areas. The study has a margin of error of plus or minus 3.1 percentage points.

NAR’s Housing Opportunity Program, www.realtor.org/housingopportunity, was created in 2002 to encourage local Realtor^® associations to create initiatives that help increase housing opportunities available to consumers and make affordable housing more readily available in their communities.

Source: NAR

http://www.realtor.org/RMODaily.nsf/pages/News2010101401?OpenDocument