Top economist gives Tampa Realtors pep talk

I wrote a piece for the St. Petersburg Times about a presentation Wednesday by National Association of Realtors' economist Lawrence Yun. He predicted that in 5 years, Tampa area home values will have risen at least 20 percent from where they are now. That means if you bought in 2005 and 2006 at the peak of the market, you'll likely recover most of your investment by 2013.

Here's a line to the story.

Here's some extra stuff from Yun's Tampa talk that didn't make the story. Some of it's a recap of national news, but I found it interesting nonetheless:

• Chinese, German and Saudi investors were burned so badly on those securities backed by subprime mortgages that the subprime market is pretty much gone for good. FHA loans will have to fill the gap, but the government is tougher about lending to Any Old Joe. Yun discussed massive conflicts of interest on the part of Wall Street companies. The same companies that rated the securities (Moody's, etc.) also received millions in commissions by underwriting those securities. Then they force fed the junk mortgage money to the banks. This is how Yun described the process: "Here's the money. Give it to anyone who shows up."
• Yun said people who need to change homes should agree to "sell low and buy low." But he said homeowners hate to concede on prices, which rise quickly during booms but are "sticky" going down. Price stubbornness on the part of sellers is helping create a "lock-in effect:" No one can buy a house because no one can sell.
• Yun is lobbying the White House to sign more legislation helping home buyers. It includes a $7,500 tax credit for first-time purchasers. Yun turned up the screws on President Bush, saying a president who entered office promising an "ownership society" shouldn't leave office with a cloud of foreclosures hanging over the market.
• Predictions that a wave of foreclosures will swamp the market have been exaggerated. Yun said. The wave theory is based on the fact that adjustable rate mortgages taken out in 2006 and fixed for 2-years are resetting in greater numbers this month and next. Yun said huge numbers of investors who held those ARMs have already walked away from the loans prior to the reset. So we've already suffered much of the hit. Also, interest rates are so low the the resets won't be as disruptive.   

Comments

[Fuzzy Bear]

Also, interest rates are so low the the resets won't be as disruptive.

I just do not agree with most of Yuns predictions. In his comment on interest rates being so low that resets won't be as disruptive. That is for now, but once rates start rising it will start all over again, so it's more of a delay tatic.

Then again, The NAR is always saying now is a great time to buy. Was it really a great time to buy? Based on the following information from Zillow, it would show the opposite:

You’re in better shape if you bought before or after the 2006 peak in prices. Here’s the percentage of homes that are underwater on their mortgages based on when they were bought, according to Zillow:
2003 7%
2004 16%
2005 42%
2006 52%
2007 45%

[k]

..cue the Realtor haters, unrealistic scenario hypothesists, hedger shills, and logical fallices.

[Fuzzy Bear]

Also, interest rates are so low the the resets won't be as disruptive.

The above comment is like saying the impact of inflation and high oil and gas prices won't impact the consumer and won't disruptive.

[Florida - Paradise Lost]

$7500 credit for first-timers? What, the huge write-off for interest isn't enough?

I do agree with him on one thing - a great deal of the speculators (almost all of whom got on the bandwagon with toxic loans) have already bailed.

This helped remove a lot of the air out of the artificial bubble, which is a good thing. It also resulted in our huge inventory numbers now.

However, the "stickiness" of a large number of homesellers who are holding out for top-dollar will keep us from getting to stasis for another 2-3 years.

How do we know we've hit bottom? 6 straight months of declining inventories. Professional investors won't even sniff the market until then.

Oh...and I see we made yet another Top 10 List - markets forecast to experience the biggest price drops over the next 12 months. All the usual suspects are there...Miami, Vegas, Ft. Lauderdale, Phoenix, our good friends just up the road on I-4...

http://money.cnn.com/galleries/2008/moneymag/0805/gallery.resg_losers.moneymag/7.html

Kudos to all the agents out there who are working dilligently to beat it into sellers' heads: It's the PRICE, stupid!

Look out below!

[Fuzzy Bear]

Tampa, FL

12-month forecast: -17.1%
Median home price: $200,000
One year price change: -12.8%
Five year price change: 52.1%
Prices forecast to hit bottom: Jan.-Mar., 2010
Change in foreclosure rate: 281%

[Tino]

The last bullet on the foreclosure wave is off base. ARMs were only one part of the problem.

Investors who got greedy and waited too long to sell are burning through cash on their investment homes. One by one, they are throwing in the towel. If the property is deeply underwater and burning cash, a couple of percentage points in interest makes little difference.

Our condo association moved to foreclose on 2 units in 2007. In 2008 we have already moved to foreclose on 11 more units.

I am seeing these units vanish from the MLS one week and appear on RealtyTrac the next. Yun would call that positive for the housing market because "MLS inventories are dropping". I wonder how long this clueless clown can keep making up stories before he gets fired like Lereah.

[James Thorner]

So CNN predicts our $200,000 price will go down to $170,000. A buyer in the market today should look for low ball deals out there and lock in 6 percent rate. Cheap money is probably going away next year. Look for 7 percent rates. People better add that into their calculations as they search out a price bottom.

[Fuzzy Bear]

Look for 7 percent rates.

James:

Let me answer that question with a question back to you.

If interest rates rise during the correction phase of property values, which do you think will happen, home prices staying the same or declining to compensate for the rise in interest rates?

[Tino]

A jump in interest rates would push this "correction" to an all-out pricing plunge.

Home transactions would come to a screaming halt as homeowners trying to move would be forced to give up their 5% fixed rates and replace them with 7% (or more) rates. On top of that, I expect that banks are going to shift to a 25% down payment standard instead of today's 20% to get the lowest rates.

[James Thorner]

I just think the cheap money economy is unsustainable. Look at gold and oil prices and inflation. Buyers should factor that into their home buying equation. Let's face it: No one knows what will happen beyond the next 6 months. All I know is that the U.S. is resilient. This isn't the Sack of Rome, the Great Depression or Napoleon's Waterloo. It'll all work out.

[Frances]

Just figuring... but with Congress and the general public, constantly jabbering about the struggling housing market, staving off foreclosures and lack of credit liquidity, I doubt Bernanke will hike interest rates anytime soon. Inflation seems to be a secondary gripe.

What's more, many "experts" have commented that he can stomach inflation much better than his predessor and prefers a slow moving predictable approach. This combined with political pressure from the "powers that be" on Capital hill...well, I just don't see a rate hike happening.

...only time will tell.

[k]

FWIW, during the double-digit interest rate debacle ('79-'84), median home prices in the US managed an INCREASE of 21%.

http://www.census.gov/const/uspricemon.pdf

People and their needs will adjust to suit the market, whatever the circumstance. High interest? Smaller home. High gas? Move to the city or buy a smaller car. Need will always be there. Supply Supply Supply has the biggest effect on price. Is inventory increasing?

[Fuzzy Bear]

Inflation seems to be a secondary gripe.

Good point Francis!

What we are seeing is a bailout of the banking industry and Wallstreet to avoid a rather serious economic downturn.

The bailout is at the expense of the consumer via high inflation which is the lessor of the two evils.

[Fuzzy Bear]

Supply Supply Supply

and demand demand demand has the biggest effect on pricing.

Sorry K, I just had to add that part in to help underscore your point!

[Tino]

k, I'm sorry that you misinterpreted this statistic. Yes, between 1979 and 1984, home prices increased by 21%.

However, inflation (as measured by the CPI) increased by 53%.

House values, as measured in real dollars, fell DRAMATICALLY during this period.

Your statistic provides ammunition against your thesis. Homeowners were borrowing money at 12-15% interest rates to buy homes that were escalating in value by 4% a year. Buying during this period was a money-losing proposition.

[k]

Weren't you the poster complaining about someone leaving out the option of refinancing?

[Tino]

Yes, but the fact remains that the cost of everything (consumer liabilities) from 1979-1984 went up by 53%, while home prices (consumer assets) only went up by 21%. It was a rough time for homeowners.

[k]

That post-stagflation era had significant wage increases to boot.

[Fuzzy Bear]

That post-stagflation era had significant wage increases to boot.

And that sent the job market into a tailspin and crash around 1980. I am just starting to see the wage preasures increase in payrolls as inflation continues to increase. It's a slight increase, but it could be significant in due time if oil and gas costs continue to impact the consumer.

[Fuzzy Bear]

Fuzzy, Why the hate for realtors, man? If you hate the realtor-based system, just sell your house yourself and hire a real estate attorney when you buy. I can tell you that, when we sold in a cooling maket, we would have been cooked w/o a realt

Fred:

I am not in the market to sell or buy, won't part of that do you not understand? This site does not have enough room on it for me to post all of the factual cases of illegal and unethical activity by the dishonest realtors.

My advice to the honest and ethical realtors and brokers, you know who these people are, expose them to your broker and the brokers need to remove them so they won't continue to harm your reputation! It's simple, I have seen it done and it works!