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Thursday, June 26, 2008

NAR Market Forecast

Reading, and making sense of, the latest Real Estate Market Forecast from National Association of Realtors Chief Economist Lawrence Yun is more difficult than keeping track of the plot twists in a daytime soap opera - it's up, it's down, this is good but that is bad. When you're through reading it you don't know whether to be happy or concerned. Economists are good at that sort of language. Do you remember the speeches that ex-FED Chairman Alan Greenspan used to give?

Anyway, what Yun said was that pending sales were up in May, which sounded good. Then he went on to say that sales that are pending are actually closing at a much lower rate these days, and that is bad. The there was the bad news that the inventory level rose again to record levels, with 4.55 Million homes on the market - an 11.2 months supply, according to Yun. But the good news was that part of that was due to seasonal factors (warmer weather), which was expected. Of course the bad news was that the increase was larger than expected. But the good news is that home sellers are pricing the homes more realistically now, which is caused by the bad news that home prices continue to fall. You get the picture. Yun continues to see prices dropping for the remainder of this year.

More good news was the removal of the "declining market policy" by Fannie Mae and Freddie Mac. Fannie and Freddie had imposed the "declining market policy" which required a higher down payment and higher credit scores in lending regions where prices had been falling (that would include our market) and the policy become a self-fulfilling prophesy and further reduced housing demand. DUH! Finally, someone pointed out that Fannie and Freddie were created with the mission of providing credit in times of crisis, so they decided to do away with the restrictive policy in June. Since these same policies drove appraisals down (appraisers were told to take an extra 4-5% off the value due to the “declining market” designation), it further exacerbated the bad situation. The other good news concerning Fannie and Freddie that is impacting the market is the increase in their jumbo mortgage limits, which allows them to make bigger “conforming” loans, without having to charge a jumbo loan premium.

Yun also pointed out that higher FHA limits have helped too and that more borrowers who might have taken out sub-prime loans a year or so back are now using the FHA programs. He noted also that we are likely to see more bills make it to the Presidents desk to help give strapped homeowners a break or at least some relief against being foreclosed. One part of the expected bill would give home buyers a tax credit to encourage fence-sitters to get off the fence and buy a house.

The bottom line for Yun is that he thinks the second half of this year will show improved sales, although he’s less sanguine about prices. In other words things will get better…unless they don’t. Economists – you gotta’ love ‘em. I suspect that every PhD Economist had to minor in double-talk in order to graduate. Maybe Yun and other economists should resort to paraphrasing that great philosopher Yogi Barra - Things will get better, when they're better.

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