By Katherine Tarbox, Senior Editor, REALTOR® Magazine
While the stock market continues its wild ride and as things begin to look gloomy for Europe, NAR Chief Economist Lawrence Yun is optimistic that the conditions needed for a housing recovery are present in today’s economy. “The market is trying to gain traction,” Yun told an audience of association executives at the National Association of REALTORS® Leadership Summit in Chicago today. “It’s not a nice recovery, but rather a struggling recovery. It’s frustrating.”
He noted that while GDP grew less than 1 percent in the first half of 2011, which indicates that the U.S. is on the brink of another recession, the number of jobs is increasing — albeit slowly. Consumers spending is also up. Last week, the U.S. Commerce Department announced that retail spending was up 0.5 percent in July. This small shift in the job market should force some sales, said Yun, as should the fact the affordability is high and rent prices are beginning to soar.
However, Yun said that buyers are still hesitant to purchase while the economy is fragile, and he believes that many deals are falling through because of financing. Yun estimates that if Fannie and Freddie lowered the credit score required for first-time home buyers from 762 to 720, housing sales would increase from 15 to 20 percent.
What would hamper a housing recovery would be any hurdles Washington puts in the way such as requiring a QRM (Qualified Residential Mortgage) with a down payment of 20 percent. In addition, any slash to the MID (mortgage interest deduction) could have ripple effects on the economy. If Washington removed the MID from second homes, Yun says that would hurt workers in resort towns who rely on that industry.
Yun also discussed his concern about the ability for small businesses to launch, as housing equity has traditionally provided funding for start-ups. In this economy, small business lending has been difficult to impossible, he said. The good news is that housing equity remains stable.
North Dakota and South Florida are two bright spots to look at, according to Yun. North Dakota has a steady job market that has lead to a budget surplus for the state. In South Florida, prices have gone so low that investors are buying and prices are beginning to increase.