CAAR Blog

(Press release from the National Association of Realtors)

WASHINGTON (February 25, 2009) – Existing-home sales declined in January with some buyers waiting to see how details of the economic stimulus package would affect them, according to the National Association of Realtors®.  At the same time, inventories fell to a two-year low.
Existing-home sales – including single-family, townhomes, condominiums and co-ops – fell 5.3 percent to a seasonally adjusted annual rate¹ of 4.49 million units in January from a level of 4.74 million units in December, and are 8.6 percent lower the 4.91 million-unit pace in January 2008.

Lawrence Yun, NAR chief economist, said there was understandable hesitation by some home buyers.  “Given so much stimulus package discussion in January, some would-be buyers simply sat out for clarity and certainty on the nature of housing stimulus,” he said.  “The housing market will soon get a lift from very favorable buying conditions – not only from improved affordability, but also from the stimulus of an $8,000 first-time home buyer tax credit, and higher conforming loan limits that will allow more people to tap into 50-year low mortgage rates.”
NAR estimates the impact of the stimulus package and lower interest rates on the housing market to be about 900,000 additional home sales in 2009 compared to conditions before the stimulus package.  Inventory is expected to fall below an 8-month supply by the year end, which would be consistent with home price stabilization.

Total housing inventory at the end of January fell 2.7 percent to 3.60 million existing homes available for sale, which represents a 9.6-month supply² at the current sales pace.  Because sales were down, the January supply is up from a 9.4-month supply in December. 

“The drop in total inventory is an encouraging sign because the number of homes on the market has declined steadily since peaking in July 2008, and inventory is at the lowest level in two years,” Yun said.  In January 2007 there were 3.54 million homes for sale.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said foreclosure relief needs to be fair.  “Though President Obama’s foreclosure relief plan is a step in the right direction with a net positive benefit for the housing market, serious issues of moral hazard and fairness need to be better addressed,” he said. 
“The plan should be wider in scope with equal opportunity for all rather than targeting specific groups.  Responsible homeowners who have been making payments consistently on time but do not have traditional refinance options should also qualify for potential loan modifications,” McMillan said.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low at 5.05 percent in January from 5.29 percent in December; the rate was 5.76 percent in January 2008.

A high prevalence of distressed home sales, and of those in lower price ranges, has skewed the median price to be markedly lower than under normal market conditions.  The national median existing-home price³ for all housing types was $170,300 in January, down 14.8 percent from a year earlier when the median was $199,800; the median is where half of the homes sold for more and half sold for less.
McMillan said we are living in a bifurcated market divided between distressed sales and traditional homes.  “It appears that in many instances a buyer can get a really good deal on a distressed sale, although that home may require some significant effort to bring it up to standard.”  A preliminary analysis by NAR suggests that non-distressed properties are holding their value much better.
“Distressed sales activity appears to be leveling off, although there are wide differences locally.  For example, close to 80 percent of all sales are either foreclosed properties or short sales in Santa Ana, Calif., but less than 20 percent in the Chicago region,” Yun said.  About a quarter of all inventory is listed as being distressed, but NAR estimates that distressed sales – foreclosed or those requiring a lender-mediated short sale – comprised about 45 percent of all sales in January.  “Home buyers are evidently competing for homes with deep discounts,” he said.

Yun said it will take a while for the stimulus to show in housing data.  From the time a buyer starts looking for a home until it is reported as a closed sale can take as long as five months:  a median of 10 weeks to search and make an offer, about 6 weeks to close the transaction and up to 4 weeks to collect and report the data.  “This means improvement from the economic stimulus isn’t likely to show as closed home sales before summer, although we may see an earlier lift from lower mortgage interest rates,” he said.

Significant local market variations continue.  “A majority of markets experienced sales declines of more than 20 percent from a year ago, but some markets appeared to have reached the tipping point of accelerating home buying,” Yun said.  “For example, home sales in Las Vegas have more than doubled with some reports of multiple bids.”

Single-family home sales fell 4.7 percent to a seasonally adjusted annual rate of 4.05 million in January from a pace of 4.25 million in December, and are 7.1 percent less than a 4.36 million-unit level in January 2008.  The median existing single-family home price was $169,900 in January, which is 13.8 percent below a year ago.

Existing condominium and co-op sales dropped 10.2 percent to a seasonally adjusted annual rate of 440,000 units in January from 490,000 units in December, and are 20.3 percent lower than the 552,000-unit level a year ago.  The median existing condo price⁴ was $174,400 in January, down 20.6 percent from January 2008.

Regionally, existing-home sales in the Northeast dropped 14.7 percent to an annual pace of 640,000 in January, and are 23.8 percent lower than January 2008.  The median price in the Northeast was $228,200, down 14.7 percent from a year ago.

Existing-home sales in the Midwest fell 5.7 percent in January to a level of 1.00 million and are 16.7 percent below a year ago.  The median price in the Midwest was $138,100, which is 6.8 percent lower than January 2008. 

In the South, existing-home sales declined 5.7 percent to an annual pace of 1.64 million in January, and are 15.9 percent below January 2008.  The median price in the South was $152,100, down 7.4 percent from a year earlier. 

Existing-home sales in the West were unchanged at an annual rate of 1.20 million in January and are 29.0 percent stronger than a year ago.  The median price in the West was $220,000, which is 25.5 percent below January 2008. 

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.

On February 18, 2009, President Obama announced his Homeowner Affordability and Stability Plan designed to help 7 to 9 million families avoid foreclosure by refinancing or modifying their mortgages. The plan also strengthens the federal commitment to Fannie Mae and Freddie Mac (the government sponsored enterprises, or GSEs).
Here are the key elements of the Obama plan:

1. Refinancing by the GSEs of loans that they own or guarantee. The GSEs will work with their loan servicers to develop a streamlined refinancing program for borrowers with loan-to-value ratios (LTVs) above 80 percent but not more than 105 percent who now face difficulty refinancing.

2. A $75 billion Homeowner Stability Initiative–with lender, servicer, investor, and borrower incentives to make it work. The program is limited to loans at or below the GSE conforming loan limits.

3. More support for the GSEs, including doubling of potential Treasury investment from $100 billion to $200 billion for each GSE, to maintain their positive net worth. The plan also raises the cap on mortgages that the GSEs may hold in their portfolios by $50 billion to $900 billion.

H.R. 1, the “American Recovery and Reinvestment Act of 2009″ (AARA), passed the House on February 13, 2009, by a vote of 246 - 184. On the same day, the Senate passed the bill by a vote of 60 - 39. The President signed the bill on Tuesday, February 17, 2009. The bill is a $780 billion package, with roughly 35% of the package devoted to tax cuts (mostly for 2009) and the rest to spending intended to occur in 2009 and 2010.

The mix of provisions of interest to REALTORS® changed frequently throughout the legislative process, with changes continuing to be made just hours before the measure was released prior to the vote. In the end, the elements of NAR’s housing agenda were included. Congress and the President have announced that a finance and housing package (including tax provisions) will be the next “big” initiative, so Congress has by no means finished its work as it affects the housing industry and REALTORS®.
The bill includes the following provisions:

• Homebuyer Tax Credit — The bill provides for a $8,000 tax credit that would be available to first-time home buyers for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009. The credit does not require repayment. Most of the mechanics of the credit will be the same as under the 2008 rules: the credit will be claimed on a tax return to reduce the purchaser’s income tax liability. If any credit amount remains unused, then the unused amount will be refunded as a check to the purchaser.
• FHA, Fannie Mae and Freddie Mac Loan Limits — The bill reinstates last year’s 2008 loan limits for FHA, Freddie Mac, and Fannie Mae loans. These limits were equal to the greater of 125% of the 2008 local area median home price or $271,050 for FHA and $417,000 for Fannie and Freddie, with an overall maximum cap of $729,750. For the few areas where the 2009 limits were higher, the higher limits will apply. In addition, the bill includes language providing the HUD Secretary with the discretion, if warranted, to increase the loan limit for any “sub-area”, i.e.an area smaller than a county. The Secretary’s discretion is again limited by the $729,750 cap. These 2009 limits will expire December 31, 2009.
• Neighborhood Stabilization — Division A, Title XII of the bill provides $2,000,000,000 in additional funding for the Neighborhood Stabilization Program (NSP). The NSP was created by the Housing and Economic Recovery Act of 2008 (Public Law 110-289) to provide grants through the Community Development Block Grant program (CDBG) to states and localities to address the problems that can be created when whole neighborhoods are decimated by foreclosures. The funds can be used to purchase, manage, repair and resell foreclosed and abandoned properties. In addition, the funds can also be used by states and localities to establish financing methods for the purchase and redevelopment of foreclosed properties. After purchase the homes must be used to assist individuals and families with incomes at or below 120% of area median income. Twenty-five percent of funds must be used for households with incomes at or below 50% of area median income. By leveraging their expertise in partnership with others from both the public and private sector, REALTORS® in many communities have been making important contributions to their local communities’ neighborhood stabilization programs.
• Commercial Real Estate — Commercial real estate is impacted primarily through those provisions of the bill focused on green building and energy efficiency as well as business tax incentives. H.R. 1 provides significant funds for state energy programs, which could be used to support commercial property owners’ investment in energy efficiency upgrades while commercial property owners seeking to invest in alternative energy systems for onsite power generation would benefit from the Department of Energy Renewable Energy Loan Guarantees Program. Of particular benefit to small businesses would be certain provisions of the bill that provide tax relief in the area of bonus depreciation and capital expenditures, as well as the 5-Year carryback of net operating losses for small businesses.
• Rural Housing Service — The bill provides an additional $500 million to existing USDA Rural Housing programs. The RHS provides both a guaranteed loan program and a direct housing loan program for those meeting the program’s eligibility criteria. The direct loan program will receive $270 million while $230 million will be allocated for unsubsidized guaranteed loans. It has been reported that this level of funding would provide for an additional 192,000 homeowners.
• Low Income Housing Grants — Allow states to trade in a portion of their 2009 low-income housing tax credits for Treasury grants to finance the construction or acquisition and rehabilitation of low-income housing, including those with or without tax credit allocations.
• Tax Exempt Housing Bonds — Tax-exempt interest earned on specified state and local bonds issued during 2009 and 2010 will not be subject to the Alternative Minimum Tax (AMT). In addition, financial institutions will have greater capacity to purchase tax-exempt state and local bonds.
• Energy Efficient Housing Tax Credits & Grants — To promote green jobs and energy independence, ARRA invests significantly in efforts to make homes and buildings more energy efficient. The bill provides state and local governments with $6 billion in energy efficiency and conservation grants for energy audits, retrofits and financial incentives. Through 2010, homeowners will be able to claim a 30% tax credit (up from 10%) for purchases of new furnaces, windows and insulation. Another $5 billion will be available to modernize the nation’s electricity grid and install smart meters on homes that help to save consumers money. There is also $5 billion for weatherization assistance for low income households and $2 billion for federally assisted housing (section efficiency efforts.
• Transportation Investments — The bill provides $46.7 billion to states and localities for capital investment for surface transportation projects including highways, bridges, transit, and rail projects. NAR policy supports increased spending on the types of transportation infrastructure addressed in the bill with the exception of Amtrak and high-speed inter-city rail where NAR has no policy. These investments will tend to moderate traffic congestion and support a variety of transportation alternatives which will improve the quality of life of American communities and bolster the value of real estate.
• Broadband Deployment — The bill creates $7.2 billion in grants to promote broadband deployment in unserved and underserved areas and for mapping the availability of broadband service in the U.S. Any entity is eligible to apply for a grant including municipalities, public/private partnerships and private companies as long as they comply with the grant conditions. The grants are subject to “network neutrality” requirements to ensure that broadband networks be free of restrictions on content, sites, or platforms, on the kinds of equipment that may be attached, and on the modes of communication allowed. The bill also charges the FCC is with developing a national broadband plan that shall seek to ensure that all Americans have access to broadband capability and shall establish benchmarks for meeting that goal. These provisions are important victories for homeowners because increased broadband access promotes economic growth and expands opportunities for home sales. A 2006 Commerce Department report determined that property values are 6% higher in communities where broadband is available.

The centerpiece of the tax section of the stimulus package was the first-time homebuyer tax credit. After considerable and stressful negotiations, the tax-writers who negotiated the final package were able to make only modest improvements to the rules enacted in 2008. Most of the mechanics of the credit will be the same as under the 2008 rules: the credit will be claimed on a tax return to reduce the purchaser’s income tax liability. If any credit amount remains unused, then the unused amount will be refunded as a check to the purchaser. In brief, these are the changes made:

• The credit amount is increased from $7500 to $8000.
• The credit continues to apply only to first-time homebuyers.
• Changes are effective for purchases on or after Jan 1, 2009 and before Dec 1, 2009.
• 2009 purchasers can make an election to claim the credit on their 2008 tax return.
• The credit is refundable. The amount of the refund is computed as part of the 1040 tax return filing.
• The unpopular repayment feature of the 2008 version is eliminated for 2009 purchasers. Unfortunately, eligible 2008 purchasers will still be required to repay the credit.
• While the repayment is eliminated for 2009, any credit that is taken for 2009 will be recaptured and paid to the IRS from sales proceeds if the residence is sold within three years of the date of purchase.
• DC homebuyers are eligible for the $8000 credit (In 2008, DC homebuyers had a separate, nonrepayable $5000 tax credit available to them that had already been in effect for several years.)
• Purchasers who finance their 2009 purchases with funds from a state/local housing bond authority will be eligible for credit.

A link is provided below to a chart that compares the 2008 and 2009 versions of the credit.

Chart comparing the 2008 and 2009 versions of the credit >

This is an interesting ranking system that combines home prices, salaries and sports success.  The median income they use for Charlottesville is a bit deceiving, but other than that, #9 is a pretty good ranking.

Forbes Best College Sports Towns

On February 3, 2009, Freddie Mac announced its new “Workout Strategy for High Risk Loans” to keep more families in their homes. The pilot uses servicers, including Ocwen Financial Corporation, that specialize in dealing with Alt A and other higher risk mortgage loans.

Under the pilot, borrowers who are at least 60 days delinquent will receive intensive servicer attention to achieve a successful work-out. The pilot will help 5,000 loans from California, Nevada, and other high delinquency rate states. Freddie may expand the pilot after reviewing the results due in June 2009.
Freddie Mac Press Release >

  Real Estate Today, the new radio talk show from the National Association of Realtors, will premiere this Sunday, February 15.

LISTEN TO A SNEAK PREVIEW/EXCERPT FROM THE SHOW

Real Estate Today will air online at www.RETRadio.com – visit the site anytime after the premiere to listen to current or past programs.

Beginning on February 14, satellite radio subscribers can hear Real Estate Today on America’s Talk, XM Channel 158, Saturdays 5-7 p.m. EST; Talk Radio, XM Channel 165, Saturdays 1-3 p.m. EST; and Stars, Sirius-XM Channel 102, Saturdays 6-8 a.m. and Sundays 9-11 a.m. EST.

In the Washington, D.C., area, Real Estate Today will air on the show’s flagship station, 630 WMAL AM, every Sunday from 1-3 p.m., EST, beginning February 15. With your help, we’ll quickly expand the list of stations that will carry the program locally.