In response to the spin machine called the National Association of Realtors (‘NAR’):
As Chief Economist of the NAR, this is my mid year update.
The housing market is making mild progress. However, the massive headwinds are still out there.
Even with historically low mortgage rates the purchase market still hasn’t had the rapid recovery from the bottom that most people are accustomed too. This is due to the fact that we simply don’t have enough qualified home buyers (excluding cash buyers) to soak up the excess supply created by the housing bubble. Some in our industry would lead you to believe that lending standards are too harsh and appraisals are coming in too low. We use that as an excuse to mask that Americans without stated income loans with 0 down can’t get home loans.
Lending standards have changed for the better, because if you can’t meet these three requirements…
- a 620 Fico Score
- 3.5% downpayment
- Verify your income to show you have the capacity to buy a home
…Then you shouldn’t even be looking for a home to buy and instead focus on your getting your finances in line so that one day you can buy a home.
It’s not tight credit– its common sense lending standards.
Now what about the “Low Inventory Problem”?
A major reason for the low inventory is that almost 16 million Americans are underwater. A lot people can’t, or don’t want to sell because they are waiting for higher prices to get out of the underwater mortgage debt. Also, the foreclosure process is taking way too long — anywhere from 300 days-1000 days. Our fellow housing partners Freddie, Fannie, Home Builders and the Banks are coming out with rental programs in 2012 so those homes won’t be up for sale but for rent.
So adding more inventory to the market is almost impossible at this stage. We are trying our best to stop Freddie and Fannie from selling all their foreclosures in bulk for rentals in California, not because we think it’s the 99% vs 1% but because we need the inventory to sell! If we don’t have homes to sell, what are we supposed to do!
The lack of homes on the market has caused a bidding war in some areas and because of this some people are saying the housing boom is back in motion. However, as Public Enemy said ” Don’t Believe Hype”. The NAR price index has shown home prices going up 10%, but you know your home has not gone up 10% (maybe even went down). This is because we use mixed home sale data and their hasn’t been much distressed sales lately, so although we like our index, it may not be the most realistic way of portraying the marketplace. Weak supply does lead to multiple bids. However, don’t let it fool you. We have 1/3 of the demand we had back in 2005.
With all that said, the outlook for the future really depends on where the economy is going. Even if the economy gains traction and we get strong job numbers and income growth, (somewhere over the rainbow…) we still need to see how the market reacts to higher interest rates and inflation. Purchasing power in a de leveraging economy will be difficult in a higher interest rate environment.
2011 was probably the worst year ever for existing home sales, (man, were the Housing Bulls in 2011 ever wrong!) especially considering our population and low mortgage rates. The percentage rise in existing home sales we have seen this year is hardly surprising considering how awful last year was and the drop in interest rates.
Once the real supply and demand imbalances are corrected and we get existing home sales near the 6 million level with more Americans buying homes as primary residences and less cash buyers making them into rentals, then and only then we can say the housing market is making progress to a housing recovery.
Until then, may the odds be with you!
Logan Mohtashami is a senior loan officer at his family owned mortgage company AMC Lending Group, which has been providing mortgage services for California residents since 1988. Logan is also a financial columnist for Benzinga.com and contributor for BusinessInsider.com
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