NAR Releases the 2007 Market-by-Market Home Price Analysis Reports

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The National Association of Realtors has released a comprehensive, market by market report I want to share with you containing the following information:

• The health of the local job market
• Foreclosure rates
• Housing inventory
• Debt-to-income ratios
• Mortgage-servicing-costs-to-income ratiosThese reports reflect data available through October 2007. 

Home prices in the Greater Portland Metro Region encountered a boom in 2002 to early 2005, but prices have been falling in recent quarters. Homes do not appear to be overpriced. With job gains continuing at a solid pace, home price increases will likely continue, though not at a frenzied pace. A sharp reduction in new-home construction will help control the overall inventory situation. Resetting loans and the rising number of foreclosures related to the subprime fallout are clearly negative factors, but the impact will be offset by the fundamentals of the healthy local economy.

Despite some media reports of the worst housing market conditions since the early 1990s, or even since the Great Depression, the recent home price declines have been negligible at the local level. Unlike past local housing down turns, which were accompanied with severe job cuts, the local economy continues to add jobs.

Apartment rents have been rising at the highest pace in five years, which will begin to encourage some renters to seriously consider ownership. Mortgage rates have also been falling recently and stood near a historic low of 6.5% for prime borrowers. Rates could be even more favorable in upcoming months as the Federal Reserve cuts the federal funds rate in late 2007 and in 2008 as there are clear signs of contained inflation. A revival in FHA loans, which had lost substantial market share to the risky subprime market, will provide funding for low to moderate income households at much more attractive mortgage rates. If a modernization of FHA loans is implemented including lower initial payment requirements, higher loan limits, and risk-based pricing then there could be a surge in FHA loan usage. The outlook is positive. Homebuilders having drastically cut production will help minimize prolonged oversupply conditions. Further production cuts by builders, which is encouraged, will help the market to more quickly return to a healthy state. On the demand side, job gains have added to the number of potential homebuyers. Historical relationships imply roughly one additional homeowner for every two additional new jobs. Since the peak of the housing market two years ago, the local market added 1,800 net new jobs (August 2007 vs August 2005). A rise in home sales and a strengthening in home prices appear imminent.

Sales activity has come down and home prices have also been falling in the Portland area. However, the local economy is generating jobs at a healthier pace. The Boston region has picked up strongly, which usually implies that Portland will not be too far behind. The national economy is also fundamentally sound due to rising exports and business spending. Consumer spending will be a bit weaker because of stagnant home price and its accompanying wealth impact. One interesting observation is that the continuing low mortgage rates have not led to more buyers - implying that there is an issue of confidence, or lack thereof - in the homebuying decision. Also, the recent subprime fallout is a concern, though the shakeout will be good for the housing market over the long-run as the market eliminates bad mortgage lenders. Inflation appears to be contained. Both the headline and the core consumer price index decelerated to 2.8% and 2.1%, respectively, over the past 12 months to September. Better yet, most economists anticipate a further deceleration of inflation in 2007. Such an outcome could well lead the Federal Reserve to cut the federal funds and prime rates down the road. A fed funds rate cut is no guarantee of a fall in mortgage rates, but the signal that inflation is contained will force bond buyers to demand lower inflation premium, and hence, lead to lower mortgage rates as well.

With job additions continuing (possibly at a faster clip going forward) and mortgages rates hovering at about 6.4% as of early October 2007, the housing market is poised to climb back. With home prices so affordable it is possible to get a spurt. If, however, mortgage rates were to rise to 7.5% or higher, then the housing market would continue to limp along with the possibility that home prices and overall housing wealth could fall. If rates were to move lower, then the market will recover at an even quicker pace.

This has been just a small look into the 14 page report.  For those of you who would like to see the complete report, please email me at CindyRowe@TopProducer.com  I’m happy to send you a copy.

Discussion Forum

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A Listing and $2.00 will get you on the subway!	3	JoeCline
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Yeah Right ,You Can Always Refinance	2	JoeCline

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