National, State and Local Real Estate News

The National Association of Realtors (NAR)’s latest pending home sales index point toward softer sales for the remainder of the year. However, there are large local variations.

There is good news! FHA loan applications and approvals have been rising robustly. HUD’s endorsement of FHA loans for home purchases rose 58 percent compared to a year ago. NAR has been lobbying heavily in the past year for a major FHA reform for greater flexibility and a higher loan limit. Those reforms could greatly increase the use of the FHA program, and there is a strong possibility of that occurring by early next year. Therefore, many potential first-time home buyers who in the recent past may have relied on sub-prime loans will be able enter the market with a safer and lower interest rate mortgage product. The increase in FHA loan usage will further accelerate in 2008.

There is also some discussion of raising the loan limit of Fannie-mae and Freddie-mac repurchased loans, which would measurably lower home buying costs in high-cost regions from California and Seattle in the West to the Boston, New York, and south Florida in the East.

Other positive factors! Currently, mortgage rates are generally lower. The average mortgage rate was approaching 6 percent in mid-November, down from 6.5 to 6.8 percent that we saw this summer. And while sales have been declining, the pent-up demand from steady job gains continues to climb.

Good news about the economy persists. The economy was very strong in the third quarter of this year. The prolonged dollar decline has actually helped U.S.-made products be competitive overseas. The usual negatives accompanying a weak currency (i.e. higher inflation and higher interest rates) have not materialized.

The weak dollar will also help in foreign purchases of American properties. The latest NAR survey on international buying trends (e.g. buyers from foreign countries purchasing U.S. homes) shows an increased activity from foreign buyers. Mexico, Britain, and

Canada were the top three countries of origin for those foreigners buying second homes.There are some concerns. The economy looks like it might show weak fourth quarter. Recent data on retail sales along with continuing large cutbacks in home building will hold back economic growth to about only 1 percent. But going forward into 2008, the economy should improve. Exports look to be strong, particularly if oil prices were to drift lower as the futures market indicates. Consumer spending will move ahead, although predicted at a slower pace in 2008.

Consumers do need to contend with moderately lower housing wealth. NAR forecasts that prices will post a national price decline of 2.5 percent in the fourth quarter of this year. By the first quarter of 2008 though, price declines will be minimal as current widely available mortgage products filter through the system. Keep in mind that roughly 2/3 of local markets will have recorded a positive price growth for 2007, and as we have often said all real estate is local. In 2008, many markets in the middle part of America, spanning from the Appalachian Mountains to the Rocky Mountains, could see decent price gains. These markets show undervalued conditions currently when viewed in relation to their historic local mortgage obligation-to-income ratio.

There is ambiguity related to our home sales forecast and some inaccurate media meddling which is having a greater psychological impact on potential home buyers. The forecast for home sales is estimated at 0.4 percent rise nationally. Reiterating, all real estate is local and should be gauged accordingly; if buyer confidence returns, home sales could turn out to be measurably higher.

Source: Lawrence Yun, Nar’s chief economist

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