IT’S TIME TO START LENDING ……. AND BUILDING AGAIN!
The Federal Housing Finance Agency (FHFA) released its House Price Index (HPI) for April and reported some good news: that the index rose 0.8% in April which is the first monthly increase since May 2010. The index is still down 5.7% for the past twelve months and is down 19.3% from its peak in April 2007; but perhaps it has bottomed out.
Comparing these figures to our local market, the average selling price in April was up 4.1% from March and up 3.4% for the twelve months ending April 2011. The peak of our market was achieved in November 2007 and prices are down 12% from this level. All in all, the local figures are a considerable improvement over the FHFA Index.
The National Association of Realtors (NAR) just released its report on existing home sales for May and they were down 3.8% to a seasonally adjusted annual rate of 4.81 million homes which is 15.3% lower than the pace at the end of May last year. This is even worse than the 4.91 million homes sold last year which was the worst year since 1998. A typical healthy housing market is around 6 million annual sales so the current pace is 20% lower than where it needs to be.
The local market might be in better shape on price but our sales volume is down 13.6% for the twelve months ending May 2011 and is off 33% from the peak achieved in 2004 and down 29% from the ‘healthy’ ten year average from 1998 to 2007.
The Chief Economist for NAR is Lawrence Yun who commented that “spiking gasoline prices and severe weather hurt house shopping in April” and the “current housing market activity indicates a very slow pace of broader economic activity”. He expects that “The pace of sales activity in the second half of the year is expected to be stronger than the first half and will be much stronger than the second half of last year.”
He did have some choice words for the banking community saying that the market is also being constrained. “Even with the recent economic softness, this is a disappointing performance in home sales being held back by overly restrictive loan underwriting standards. There has been a pendulum swing from very loose standards to unnecessarily restrictive practices as an overreaction to the housing correction – this overreaction is clearly holding back the recovery.”
He went on the suggest that banks are hoarding cash and contracting lending activity and while government officials are publicly exhorting the banks to lend, the banks are blaming the weak economy as well as government regulators for imposing on them uncertain financial rules as the rational why they need to be extra careful. At the same time, banks are adding profits to their bottom lines, due partly from their ability to access money on the cheap thanks to government backing of deposits and by buying tradable assets such as derivatives and government bonds. The inevitable too-big-to-fail taxpayer bailout if something were to go wrong is also quite reassuring for the large banks.
Yun ends with the statement “If the banking system would return to the old-fashioned way of lending to creditworthy borrowers that could speed the housing recovery and broader economic prosperity.”
This applies not just to the large national banks who supply most of the residential mortgage money, but equally to the smaller local banks that have been the funding source for most of the land development and construction of both commercial and residential properties. The home building industry needs to get building and it needs the support of the lending institutions to make it happen. In the last three years there have been less than 1,000 new homes sold through our local multi-list service. At the peak, that many homes were sold in one year. If there was money available to build new homes AND mortgage money available to purchase new homes, we believe the demand is there so let’s get started.
Pam & Dave Pettigrew, Certified Residential Specialists, are available to answer your questions on real estate. Write to them at Prudential Rocky Mountain, REALTORS, 2700 S. College, Fort Collins, 80525, call them directly at 970-282-9305, email FCRealtor@msn.com or visit their award winning web site at www.FortCollinsRelocation.com