Wednesday, December 15, 2010

Insight to Stimulus by National Association of Realtor's Chief Economist

“Stimulating” Debates

by Lawrence Yun, NAR Chief EconomistLawrence Yun

We may see another large dose of stimulus injected into the economy in 2011. As of this writing (mid-December 2010), the White House and the Congress are trying to arrive at a compromise on extending the Bush era tax cuts for all taxpayers. Such a compromise could include adding providing even more cash for working families via a slight reduction in the payroll tax for a year. Some other provisions for stimulating the economy are being discussed as well, but the size of this stimulus measure – at around $900 billion – will be even larger than the first stimulus legislation was passed at the beginning of the Obama Administration when $800 billion was passed.

Of course, all this stimulus talk comes on the heels of the report by the National Commission on Fiscal Responsibility and Reform (i.e., the President’s deficit reduction commission) on the need to sharply reduce the federal budget deficit over the next 10 years. With the unemployment rate rising to 9.8 percent in November – not to mention Wikileaks dominating the news coverage for now – the position seems to be “damn the deficit.”

Our forecast (see page 7) assumed lower stimulus – from an extension of the Bush era tax cuts only for households/taxpayers who had incomes below $250,000. But if the stimulus is larger – i.e., tax cuts extend for a broader range of incomes – then the short-term impact will be positive. GDP growth in 2011 will be closer to 3 percent (rather than the 1.9 percent assumed). Job creation could easily top 2.5 million payrolls rather than our originally projected 1.5 million next year. Of course, there is a downside: because of the larger projected deficit, mortgage rates will surely climb. Indeed, they seem to have already started up the slope. Nonetheless, home sales could still be boosted by 60,000 units on the strength of job gains. That would bring total existing-home sales to 5.2 million next year. Even so, there is no free lunch and there will be a cost in terms of a higher budget deficit and lower economic growth in later years.

Trying to navigate our way to port through all of these various “what will policymakers decide” waters is challenging. Depending on what happens in Washington on the tax/deficit/policy front can change the housing market forecast for next year noticeably higher or lower than is suggested by the baseline figures. One issue that could have a significant impact on the housing market is underwriting standards returning to more normal, reasonable levels. Over the past two years underwriting standards have been a killer – or at least that is what REALTORS® have been consistently relaying to me. No sensible person would advocate for a return to lax and risky underwriting standards of the housing bubble years. But one should always be mindful of not dramatically over-correcting for past mistakes. There is a bankers’ axiom: all bad loans are made in good times. We are still very far removed from good times. So loans that are originated today must surely be good. But how good is ‘good?’ What is the solid evidence that today’s underwriting standards are overly tight?

A review of Fannie Mae and Freddie Mac data on recently originated mortgages clearly validate too-tight a standard. If loans are only made to Bill Gates, Warren Buffet, and other low-risk borrowers, then their default percentage will be nil. But the cost to society at large is that many hard-working, middle-class citizens will be shut out of the capital market. The chart I present in this column reflecting the most recently available data from Fannie Mae and Freddie Mac shows the loan performance by year of origination. Note the superior loan performance of recent vintages after 18 months into the loan period. Quite remarkable! How is it possible to get such superior loan performance in an economic environment of a near 10 percent unemployment rate and home values showing hardly any growth?

The only inference to draw is that loans are going only to the low-risk, most credit-worthy borrowers. FHA loan performance is also showing superior results on recent vintages. With mortgage availability so tight, it is also not surprising that all-cash purchases have jumped this year. In the past four months, 29 percent all existing-home purchases were all-cash purchases.

It is understandable that lenders and government agencies backing those mortgages are tightening up after getting burned in the bubble years. But over-stringency in underwriting standards and superior current loan performance could backfire on the lenders. Lenders are still trying to manage the losses from loans made several years ago. Default rates continue to remain elevated on those older vintage loans, and thereby are introducing a large number of distressed properties into shadow inventory. Distressed sales have accounted for about one-third of all sales this year (or about 1.5 million) and will continue to be at that figure for next year. If the incoming distressed properties are not absorbed with more buyers, then home values will certainly fall further. That, in turn, will lead to more defaults, higher foreclosures and more financial losses for the banking system. The trade-off for the lenders is therefore to minimize losses on past originations or on new originations.

However, even assuming that underwriting standards remain the same and do not “loosen” up, home sales should still experience a moderate gain in 2011. Based on more visible metrics for jobs, income, and interest rates, existing-home sales are still likely to settle at a sustainable level of 5.2 million units. New home sales will depend more on how many homes builders can build -- and that depends on the availability of construction loans, which do not have any government backing, and therefore are even more difficult to obtain. Our best guess at the moment is for 400,000 new home sales in 2011, but that is still an increase from 316,000 in 2010. If the lending spigot opens up to a more normal flow – with normal risk-taking – then there will be a nice upside surprise to home sales next year from the baseline forecast figures.

All of Dr. Yun’s presentations, as well as other presentations on real estate and the economy, are available at http://www.realtor.org/research/research/presentations_use

Wednesday, December 8, 2010

More economic projections for our area!


This is an article from a group of people heavily involved in the local
economy in Puget Sound. Matt Gardner has compiled this information and
the individual projections into his own. I think it's very interesting and hope
you do too!



In reading the committee members’ reports I am heartened at some, but not so much by others. It is certainly a mixed bag with no firm direction for our overall real estate market and suggesting that a recovery, when it comes, will certainly be uneven.

Firstly turning my attention firstly to the single family market, I agree with Lennox Scott’s position that we will see a rise in interest rates, albeit at a slower rate than I or any of my peers has thought as we move into and through 2011, and this will have a negative effect on transactional velocities. He suggests that we appear to be seeing a market divided by price with more affordable areas, and areas proximate to job centers, demonstrating strength in sales in the first half of 2010. That being said, he suggests that the homebuyer tax credit has pulled sales forward and that we will see a slowdown in velocities in the second half of this year.

Sarah Bland over at the Department of Housing & Urban Development expands on Lennox’s data with detailed information on Excise Taxes & Affidavits that paints a more dour picture of transactions relative to the tax revenues that they generate. This is sobering from a political standpoint as revenues received by the State from taxes collected on transactions is back at 1997 levels. This will certainly have an effect on ongoing budgets at both the state and local level. However, 2010 figures, through the first half of the year, are up and one hopes that this is a trend that will continue.

Glenn Crellin at Washington State University also opines on the housing market and concurs with Lennox Scott that transactions in the first half of this year, although higher than in 2009 still remains well below the 15-year average. Sales prices exhibited greater declines in the second quarter than the first and that housing affordability in the 4-county area remains high and that today’s buyer making median income (together with certain other assumptions) can indeed afford to purchase. That being said, the ability of a first time buyer to get into our market is still very hard. I have discussed this numerous times before within the pages of this publication and it remains a great concern of mine personally, and it should also be of concern to our elected officials.

New Home Trends data shows a mixed bag of results when looking at sales of newly constructed product between the first and second quarters of this year. Single family transactions are down on all four counties, however prices are up in King and Kitsap counties. Looking at attached product, I note that sales are up in Pierce and Kitsap County and that sale prices are higher in all counties other than Snohomish where they are flat.

Overall, it appears to me that the housing market is still trying to find its balance and that buyers appear to be hesitant to dive in as they believe that we will not see rates rise in the near future nor will we see much in the way of price appreciation. A standoff is in play!

Turning our attention to the future, permit data provided by HUD, the King County Office of Budget and Management and New Home Trends continues to be somber and demonstrates that builders are not chomping at the bit to start new projects. Perceived lack of structural demand, particularly in the attached housing sector, in concert with a difficult financing environment, is still hobbling our regions builders.

Tom Cain at Apartment Insights offers some happier news as it appears as if the apartment market, which has struggled in recent years, is showing some very positive signs with vacancy rates improving and rent incentives dropping.

His belief that much of this improvement comes at the expense of home sellers as potential buyers, as attested to above, continue to believe that there is no rush to buy and this has been positive news for the regions apartment market.

Transactions of apartments, which one might think would be improving bearing in mind the above statements, has not improved in aggregate, but we have seen an uptick in transactions of projects with more than 50 units. unfortunately however, Greg Wendelken at Marcus & Millichap suggests that despite this uptick, distressed developments make up the majority of transactions and this will likely be the trend through the rest of the year. He also believes that the sale of distressed product will be to blame for continued depressed prices for the rest of 2010.

The regions office market appears to not be hemorrhaging as badly as it has been of almost 2 years now; however, vacancy rates remain stubbornly high. Jeff Scanlan at CB Richard Ellis suggests that it isthis high percent of empty space that is actually bringing perspective tenants back to the market but they are looking for deals.

Structural demand is a function of employment growth and, if forecasts are to be believed, we will grow employment this year and this should take some pressure off vacancy rates as we head into and through 2011.
Over in Kitsap County, Gary Gartin at Bradley Scott Inc. suggests that the bottom of the market, if it is here at all, is likely to hand around for a while. New business ventures are being created: however, space that they are starting to occupy is being given up by failing companies and, therefore, we are not seeing the overall improvement in occupancy that was being hoped for. It appears as if our friends to the West have some distance to go before seeing much in the way of tangible improvement.

Many tend to overlook our regions industrial market; however, as it comprises of around a quarter billion square feet we should really pay it more attention. The Port of Seattle, a major player in our market, appears to be seeing improvement and vacancy rates are stabilizing in core areas as we are not adding to inventory very much with low new construction activity.
The Kent Valley, by far the largest market as measured by overall square footage, saw positive absorption in the past quarter but the increase of available sub-lease space will drag on overall occupancy for some time.

Susi Detmer at Cushman Wakefield is a new contributor to our report and we thank her for her contribution. Her discussion of the regions retail market suggests that our region continues to fare better than the nation as a whole and that vacancy rates for institutional quality retail space is contracting and that rental rates are stabilizing. It's good to hear that consumers have not completely locked their check books away!

Alan Jut & Scott Beithan, also at CB Richard Ellis, discuss the regions lodging market and believe that we are in an upward trend relative to occupancy rates but this has come at the expense of room rates which are still in decline.

Unfortunately, new projects opening their doors will cause further erosion in rate and potentially, increasing vacancy rates. That being said, they do see a bottom forming and that the lodging market is in recovery, however it is at a snails’ pace.

I do enjoy Brett Manning’s commentary relative to the economy and this time he has called on my country’s very own James Bond to analogize the current state of the U.S. I will say no more other than suggest that you read this very amusing and informative piece.

Desiree Phair at the Washington Department of Employment Security confirms many suggestions that the Puget Sound employment situation is improving and that the trend of job losses appears to be firmly reversed. The rate of growth going forward; however, remains a crucial question that has no solid answer at this time.

Suzanne Davies Withers of the geography department at the University of Washington has penned an interesting piece relative to the economic crisis as it relates to Seattle’s housing market. In it she offers a split picture that suggests that, although housing affordability offers an unparalleled opportunity to buy, it will come at the expense of homeowners who are losing their homes to foreclosure.

Overall, this summer’s report suggests to me that we remain in a state of flux with some land uses faring better than others. The picture is far from pretty and there is still some concern that the light at the end of the tunnel is still only a glimmer.

That being said, hope remains and if the U.S. employment picture actually does start to improve, our region may benefit from it faster than the country as a whole. The second half of this year will be interesting indeed, and I look forward to discussing the committee’s year end findings in our next publication.

As usual, I wish to thank all the members of the committee for their time and effort in providing the invaluable data contained in this report. I stand firm in my belief that it represents the best information available to the reader.

Sincerely,
Matthew Gardner
Gardner Economics.

Thursday, December 2, 2010

Presidential Appointed Committee Home Owner Mortgage Interest Deduction Elimination Proposed

This is an interesting article from the National Association of Realtors' Website regarding the mortgage deduction. Those who own homes obviously want to keep a deduction that has been around for more than 80 years.

Home Owner Deduction Article

Monday, November 8, 2010

October Home Sale Statistics

~ October home sales ~

SNOHOMISH COUNTY

Listings: 5,455, up 5.5 percent.

Pending sales: 968, down 19 percent.

Closed sales: 579, down 29.8 percent.

Median price: $260,000, down 7 percent.

ISLAND COUNTY

Listings: 1,014, down 6.7 percent.

Pending sales: 78, down 33 percent.

Closed sales: 75, down 25.7 percent.

Median price: $270,000, down 3.6 percent.

Friday, November 5, 2010

King County Posts Surprisingly Higher Sales in October

Check out this Seattle Times' Article:

King County Sales

Usually this means Snohomish County is next!

Letter From Windermere's Founder John Jacobi-Interesting Commentary

Dear Windermere colleagues and friends,

To hear the pundits and self-styled experts tell it, home ownership as a goal for most Americans is over.

The message comes from national publications like Time magazine (“The Case Against Home Ownership”) and the Wall Street Journal (“the over-celebration of home-ownership), that the financial and social benefits were oversold; encouraging home ownership may have even contributed to the current difficulties in residential real estate.

To which I say: What bunk.
We’re not giving up on home ownership, and neither should you, nor should the people and communities we serve. Home ownership is too important to everyone to dismiss as some passing and outdated fad.

To tell people that home ownership isn’t a goal worth pursuing and attaining is to do them a huge disservice, not to mention being pure nonsense.

We’ve been through this before. In the 1990s some geniuses suggested housing had entered a period of permanent price deflation. To put it mildly, they were wrong.

So when the so-called experts revive their attacks on home ownership, and what we do, it’s worth reminding ourselves of the true story of the real estate market.

In September alone, about 379,000 homes and condo sales closed nationally (resale only; does not include new construction). That’s a lot of individuals and families for whom home ownership makes sense, even in uncertain economic times.

The self-appointed pundits may deride the notion of home ownership as an integral part of the American dream. But home ownership has a powerful allure to people just because it is how so many dreams are transformed into reality. Owning a home is how many Americans put down roots in a community. It’s the point of their lives at which many of them start and build families.

Our communities benefit when those people buy homes. Home owners have a stake in the condition and appearance of their neighborhoods, in the safety of their communities, in the performance of their schools, in the vitality of local businesses, in the array of cultural and recreational offerings available. For them, a home is not just an address – achieving home ownership is something to be proud of. They are making an investment – psychologically and financially, figuratively and literally – in the communities in which they live, work, shop, play and raise families.

Here’s a bit of statistical insight to keep in mind: Median home prices increased every decade from 1940 to 2000, according to U.S. Census data. In some areas, they doubled in each ten year period.

Warren Buffett, who knows a thing or two about investing, has said he can’t predict where stock prices will be in 10 months, but he does feel comfortable predicting where they’ll be in 10 years – up.

It’s the same with home prices. We can’t predict where they’ll be 10 months from now. They may be up in some markets, down in others. But I am comfortable predicting that in 10 years home prices will be above where they are now. Furthermore, home buyers get advantages not available with other investments. If you buy a gold bar, you pay the full amount, and it delivers no benefits while you own it. But homebuyers enjoy the benefits of leverage and the increase in their equity as the price appreciates (put 10 percent down on a $100,000 home, and if the price increases an average 2 percent a year, you’ve doubled your down payment in five years). They also get tax benefits from the mortgage-interest and property-tax deductions. Plus, they can live in and enjoy their home. They can’t do that with a gold bar.

So while Geoff Wood gave his perspective of the last 10 years, I can give my perspective as well, having been in this business for almost 50 years. I have been through a few ugly periods and recessions in the housing market – like the early 1980s, when interest rates soared above 18 percent.

And yet people still wanted to buy homes even in that economy, and we sold homes and survived. We will survive this too. Eventually the financial markets will right themselves, the economy will recover, and we’ll return to more “normal” conditions in housing – and home ownership will again, return to favor.

We’re not waiting around for that to happen. We’ll continue to help people find homes that are right for their lives, their lifestyle, their families, their aspirations and their budgets, helping them build their futures, their financial security and their communities’ well-being.

And we’ll be proud to have done so.

John Jacobi,

Founder and chairman, Windermere Real Estate

Monday, October 25, 2010

Update on Mortgage Interest Rates

I spend part of every Monday checking out my on-line stats for listings, looking at economic and housing news, updating myself on the mortgage interest rates and for today's update on interest rates, please check the following link:

Interest Rates for Mortgages

For an update on local interest rates any day, please check in with my website:

http://www.debbiebargersmith.com > help for Buyers > Search for homes and in the lower right hand corner you will see interest rates, updated daily.

Hope your fall is starting off well!

Monday, October 18, 2010

Tools you Need to Maintain Your Home!

Another New York Times article:

Home Maintenance Tools

Maintaining your home now means less time and money required later for repairs if you need to sell your home!

Buyers Won't Buy Stinky Houses!

If you are a Seller and I have talked to you about preparing your home to go on the market, you've already heard me say: Buyers won't buy what Buyers can smell! Your home must look and smell great! Here is an article that supports that view...

New York Times Article

Wednesday, August 25, 2010

It's been an Interesting 3 years

Just in case any of you thought I knew that our prices would decline as they have, I want you to know that no-one I know had this knowledge. If they had, or if I had, I would have told you. We bought at the peak of the market and our housing value is in the same boat as many of my reader's home values. Consider this:

  • Historically, American home values are the best long term investment.
  • Historically, Americans stay in their homes an average of 7 years.
  • In some ways, our houses are like stocks market values. They are what they are. You cannot sell your stocks for less than what they're worth, period.
  • We're in America, the number one nation on earth. If you bought at the peak, consider relaxing, enjoying your home, and wait that 7 years. Our area has been identified as the number one area expected to rebound in terms of housing prices.
I hope you're having a fabulous summer and that you're enjoying the fruits of your labor!

Interest Rates-Again!

Today a Conventional Fixed Rate 30 year Residential Real Estate loan can be had for 4%. Unheard of. If the interest rates goes up .05%, your buying power could decrease by $10,000. Keep your eyes on the news. Prices on homes are down as well.
Call me if you are at all interested in information about properties out there!

Thursday, August 5, 2010

Realtor Food Drive

Historically, my Windermere office in Marysville, wins the Food Drive contest. I hear through the grapevine that the other Snohomish County Real Estate offices are going to try to beat us. This means war! (In a good way, of course). If you want to bring canned goods or money into my office at 801 State Avenue, Marysville, Wa., please do so during the month of September. We will mount a sneak attack and pull out a come from behind win yet again!

Go Food Bank!

Interest Rates

Interest Rates are at historical lows. Just 2 years ago interest rates were high 5's and low 6's. If you are interested in refinancing, now is the time. If you are interested in Purchasing, now is the time. The fact that interest rates are THIS LOW means your new investment property or dream home is just that much more affordable! I wouldn't wait....

Tuesday, May 4, 2010

The Tax Credit is Over....Now What?

Here is what I think....there are such great prices out in the market right now for both commercial and residential properties, that I believe the market will continue towards normality. Interest rates still threaten to rise, but as of today, my on-line mortgage information says that rates are still hovering around 5%. How much further down will prices go...no one knows. The talking heads are suggesting that the downward trend is about over. When will market values start moving up?....no one knows. Talking heads are saying they will....but probably not much for the foreseeable future year by year. At least not like it was for 3-5 years. While this might be frustrating for some of us who bought at the peak, here's the good news...it offers stability!

The most important thing for you to know is that it's a great time to buy and Sellers, price your homes correctly. It is a strong buyers market still....in most of our Puget Sound areas, although there are some exceptions in either area/neighborhood or price ranges.

Wednesday, April 7, 2010

National Realtor Open House Weekend

If you're thinking about starting to look for homes to take advantage of the $8,000 first time Buyer Tax Credit, this is the weekend to look!

See this Video that explains it all!

Realtor Open House

Rent Vs Own

This is an interesting piece of information for those interested in the differences between renting and owning.

Rent Vs Own

Wednesday, February 10, 2010

If You're Interested in a Current Market Analysis on Your Home....

Interested in knowing the Current Market Value of your home today? Just give me a call, I'll give you the full market data on your property whether it be vacant land, your home, or your investment property. Just call me at 425-356-9177 or e-mail me at debbiebargersmith@windermere.com.

Monday, January 25, 2010

More Incentives and Down Payment Assistance Programs

Hey Buyers out there, there are tax credits for new as well as existing home owners! Congress extended the previous tax credit of $8,000 for new home buyers as well as created an additional tax credit for current home owners as long as LONG AS you have a contract in place by 4/30/10 and are closed by 6/30/2010.

You should get a hopping if you wish to take advantage of this tax credit. Interest rates are UNDER 5% again but who knows how long that will last!