Experts give mixed picture on housing recovery
 
By Jackie Friedlander
Fairfax County Times
September 29, 2009

Applause interrupted one of the speakers during a three-hour economic summit hosted by the Northern Virginia Association of Realtors Sept. 23 at George Mason University.

The kudos went to Rep. Gerry E. Connolly (D- Dist. 11), whose district includes parts of Fairfax and Prince William counties. He won them by saying, “The homebuyers’ tax credit has really been a stimulus, and I want to be sure we extend it.”

The program, which provides an $8,000 federal tax credit to first-time buyers, has attracted 1.5 million new customers this year. It is set to expire on Dec. 1.

“It is a good program, and it is working,” said NVAR Board Chairman Susan Mekenney of RE/MAX Allegiance in Alexandria. “I would like to see it expanded to everyone. Realtors often tell me that the tax credit is encouraging first-time buyers,” along with the falling prices and interest rates.

The prospects for the extension look promising, she said, “and a lot of people are working on it.” They include the National Association of Realtors, which has launched a vigorous Congressional lobbying campaign. She warned, though, that the passage was far from a sure thing.

As with so many proposals calling for government spending, the “spending” part appears to be the sticking point. This year’s tax credit program cost $15 billion in tax revenue.

“That sounds like a lot of money,” Connolly said, but reminded the audience that the total stimulus package came closer to $800 billion.

Lawrence Yun, chief economist for the National Association of Realtors, argued that the government’s lost revenue would be amply repaid.

For one thing, he said, the average homebuyer pumps $63,000 into the economy, through additional purchases ranging from moving trucks to appliances, furnishings and even new cars.

“Most income tax is paid by homeowners,” so the government will get a lot of its investment back, he said.

“We are on the cusp of a housing market recovery,” Yun said. “Hopefully the tax credit extension will be passed, and then we will see that revival happen in six months. That’s why I have no compunction in pushing for it.”

While the 2008 housing market collapse is widely blamed for starting the current recession, Yun predicted that the housing recovery would, in turn, play a major role in ending it.

“When people say that we are out of the recession and you ask them why, they answer that it is because of the upgraded housing market forecast,” he said. “Most people have their wealth tied up in their homes. If they see that their value is rising, they will feel more comfortable in buying other things.”

‘Going like gangbusters’
Ben Bernanke, chairman of the Federal Reserve, is among those who declared that the recession had technically ended, while admitting that job losses have continued.

“Unemployment will stay stubborn,” Connolly said.

But the people who are most likely to keep their jobs are also the most apt to buy homes, according to Stephen Fuller, director of the Regional Analysis Center at George Mason University.

Throughout the Washington, D.C.,  area, 42,100 jobs were lost in August, Fuller said. However, the picture in Los Angeles was much darker, with 200,000 job losses. And for our region’s most likely homebuyers, the view was brighter yet.

The number of federal government employees rose by 12 percent last month compared to the same month last year. It was followed by a 4 percent increase in education and health positions and a 1 percent boost in professional and business services providers. Construction and retail workers were the hardest hit, with 17 and 13 percent jobs lost.

Yun warned that the national unemployment rate might rise to 10.3 percent before the recovery begins. “The pain will continue in the job market,” he said.

Fuller predicted that the lost jobs will not return until the second quarter of 2010.

“But then there will be 11 to 12 really good years,” he added. “We should know by the sixth quarter if there is a real recovery.”

When the positions do come back, Fuller said, “We expect that most will be filled by higher-skilled and higher-paying employees … which means even more likely homebuyers.”

Already, he said, the Northern Virginia market has bottomed out, and home sales are rising as inventory falls. The monthly NVAR sales statistics bear him out. “Due to the pent-up demand, Northern Virginia will recover first,” he said. “By 2011 and 2012, it will be going like gangbusters.”

The $400,000 to $600,000 range is still the strongest, he said. This became vividly clear, when a $559,000 house in Oak Hill attracted 12 prospects in three days this September, followed by 18 visitors at a Sunday open house. Three offers were made that evening, and one was accepted the following day.
Excess of caution

Agreeing that the housing market is speeding up again, Yun said that some lenders are unintentionally slowing it down.

“In the boom that lasted through 2005, they said ‘lend to anyone,’” he recalled.

But now, he warned, the previous lack of caution has turned into a definite excess. He reflected the Realtors’ resulting frustration, with the slow pace of home appraisals and bank approval for short sales. One common lament among homebuyers is that they were able to get a contract, but were not able to get the mortgage approved.

Still, Yun said, people are returning to the market because prices are too tempting to pass up, and interest rates remain attractive. Once again, he praised the $8,000 tax credit for playing a vital role.

“Some people say that government involvement is bad, bad, bad,” Yun said. But with homeowners paying so much in taxes, “They should be getting something back in return.”

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