Hard to gauge market


The National Association of Realtors reports existing home sales volume is up by 3 percent over last year at this time, while new home sales have declined by 16.6 percent in January, the largest drop in 13 years.

Consumers are finding it difficult to gauge the market amid conflicting economic indicator reports, both at the national and local levels. A second glance at the figures and prognosis for the investment value of homes is perhaps clearer than the daily pounding of often overwhelming economic data.

Economists cite the one month-on-month statistics as the least reliable of the various housing indicators. The economic research group said, Januarys report is not enough to offset the more favorable picture painted by other housing indicators.

While Wall Street continues to view home mortgages as a stock value, which it certainly is, the historical housing activity trends have been judged on longer-term investments, versus short-term gains. With the anticipated downside on high-risk mortgages, represented by HSBC Holdings (New Century) in the marketplace, the detraction offered by the sub-prime mortgage market may overshadow the more conventional mortgage market and the goals of the traditional home equity investor.

Freddie Mac and Fannie Mae, the government-sponsored private mortgage lending institutions that set the standards for the overwhelming majority of home mortgage underwriting standards in the United States, are tightening the credit standards for loans they will purchase from private-sector lenders. These include no-document loans and teaser (adjustable rate mortgage loans) where applicants do not qualify for the higher interest rate laid out in the loan, following the low introductory rate. Stricter salary documentation and repayment capability guidelines will also apply going forward, according to industry analysts.

These measures and the newest analysis of the housing market in general are in keeping with economic analysis across the nation and should not come as a surprise to informed consumers. Our region, along with many others in the nation, has a housing affordability crisis that continues, despite the market correction underway. Consequently, first-time homebuyers, and families stretching to live close to work and within preferred school districts, are taking on credit risks to afford their home of choice. While the increase in market absorption rates for existing homes is picking up down to a 6.8 month supply, versus a 7.2-month supply in October of 06, the affordability crisis continues. 

Lesson to learn
The hardest hit sector of the market is new home sales, down by 19 percent in the northeastern United States, down 37 percent in the west, down 10 percent in the south and 8 percent in the midwest. A closer look at the income versus home price ratio in these parts of the country corresponds with market trends.

There is a lesson for all of us in this data: stay within a housing budget, be prepared to compromise on amenities and/or location to afford your home of choice, and keep in mind that the true value of home ownership rests with a sense of community, the long-term appreciation, and the short-term source of a capital investment.

The Office of Federal Housing Enterprise Oversight (OFHEO) reports national home prices rose 1.1 percent in the fourth quarter of 2006, versus the third quarter. 2006 was the third-highest appreciation sales market in history.

ccordingly, OFHEO reports that prices in the fourth quarter of 2006 were 5.9 percent higher than they were in the same quarter in 2005. The sky is not falling.

When home ownership is seen as the social and economic investment it has historically been, trends are still good. When the home mortgage is seen as a commodity, it becomes a Wall Street football, with weekly highs and lows that have little to do with the intent or purpose of the purchase to begin with.

Jeni Upchurch provides a weekly report on the real estate market. She is a former Assistant Secretary, U.S. Department of Housing & Urban Development. Her real estate practice includes northern Virginia and the District of Columbia. She is affiliated with McEnearney Associates old town, Alexandria office, and can be reached directly at 571-216-6701 for consultation on purchase and sales strategies.