The numbers crunchers and statistics hounds making PowerPoint presentations and reeling off figures and comparisons at the Triangle Housing Forecast on Dec. 16 struggled to find omens of hope to offer the nearly 300 housing industry professionals who packed into the ballroom at the Brier Creek Country Club. The 3-hour seminar, jointly produced by the Home Builders Association of Raleigh-Wake County and the Home Builders Association of Durham, Orange and Chatham Counties, featured Wells Fargo senior economist Mark Vitner, a favorite on the national speakers’ circuit, though he doesn’t try to sugarcoat what he sees in economic indicators.
“Everybody wants to know am I going to put the bear back in the cage,” Vitner said.
Local speakers drilled down in the Triangle housing market. Bernard Helms of Market Opportunity Research Enterprises in Rocky Mount analyzed the recent real estate transactions in the Triangle and compared them to previous years. Stacey Anfindsen of Birch Appraisal Group in Raleigh ran through numbers on residential real estate listings and housing inventories and prices. Ed Dunnavant of Metrostudy in Cary laid out the trends in the real estate market and explained how to survive until the economic recovery kicks in.
Vitner drew a quick sketch of the economic picture overall. The economy is getting somewhat better than it was a year ago, according to indicators. The Gross Domestic Product showed some growth in the third quarter of this year, due mainly to federal stimulus programs such as Cash for Clunkers and the first-time home buyer tax credit. The recovery may be sluggish but is unlikely to double-dip, he said, meaning it won’t drop back after a short-term uptick.
Although the number of job losses — more than 9 million — is expected to exceed every post-WWII downturn, it has hit the private sector hardest. University towns and centers of government have the lowest unemployment rate. That bodes well for the Triangle, with the state capital in Raleigh and the number of colleges and universities in Raleigh, Durham and Chapel Hill. Vitner expects the state’s unemployment rate to top out around 11 percent in fall 2010.
The one sector of the economy that is growing at a rapid pace is the mobile Internet industry, more good news for the Triangle, which has Research Triangle Park. Vitner predicts that inflation will rise faster than in the previous decade because the U.S. economy is growing slower than the global economy. Foreign suppliers are less likely to give U.S. consumers discounts, offering them instead to fast-growing economies, like China, where competition for sales is stiffer.
The worst is over for plummeting home prices, Vitner said, except for the high-end market. Mortgage rates are very low, mainly due to federal stimulus, and Vitner predicts they will remain low for the foreseeable future. “You can’t raise interest rates if unemployment rates stay high,” he said. High unemployment tamps down demand for mortgages, keeping rates low. Though the first-time home buyer tax credit was extended through April 2010, “most qualified buyers have already taken advantage of it,” he said. As for federal refinancing programs, he said, 95 percent of modified loans are delinquent again in three months.
Once mortgage rates begin to rise, in 2012 or 2013, he expects them to double to at least 8 percent. “The era of cheap and abundant credit is over,” he said.
Bernard Helm has looked at every residential real estate transaction recorded in the Triangle since 1986. And while his charts and graphs that compared market activity in 2007 with that of 2009 show a significant contraction of the market, bear in mind that 2007 was as close to a “bubble” year in residential real estate that the Triangle has had in many years.
The bright spot Helm found was that, though the total number of closings had declined, closings of resale homes made up a larger share of the market. That indicates more of the existing housing inventory is being absorbed, which will eventually lead to stronger housing prices.
The first-time home buyer credit did boost sales of moderately priced homes but had either no effect or a negative effect on the inventory of newly built homes. Those new homes tend to be high-priced because before the market collapsed, that’s where the greatest profit was for builders. Demand was strong, and the market drifted toward pricey homes. Developers bought land and prepped it for golf-course communities and other high-end subdivisions. Now that the market demand is for homes less than $150,000, developers would not be able to cover their development costs by building low-priced homes in luxury communities.
Again, there’s good news, for public builders at least. As banks grow increasingly reluctant to lend to private builders, what little land available is being snapped up by public builders who don’t have to rely on private financing.
Helm warned to expect a sag in real estate transactions in early 2010 because the federal tax credit pulled some 2010 buyers into the 2009 market.
He ended by sharing what he sees are the basics for recovery: Home sellers must capitulate on pricing. The resale home inventory must stabilize, which includes absorbing the shadow inventory of homes that sellers are deliberately keeping off the market until prices rise. Land prices must capitulate. And banks must be willing to lend and consumers able to borrow.
Stacey Anfindsen compared listings and showings and gave the heartening news that average days on the market is only a few weeks longer than in the strong 2007 market. Sales prices are dropping, he said, but as people own their homes about 4 years on average before selling, only people who bought in the past three years and sold this year probably lost money on the sale.
Ed Dunnavant closed the meeting with advice to builders on how to hold on during a slow recovery:
Refocus on building for the natural demand coming from people who marry, have a baby, get a promotion or decide to stop renting. They make up a steady supply of buyers.
Reposition your product to satisfy the demands of the 2010 buyer. Buyers are shifting their housing decisions to reflect what they need, rather than what they want. Expect them to shy away from conspicuous consumption in the early stages of recovery.
Reprice lots and homes to the expectations of your customers. Today’s buyers are concerned about debt and are risk averse. Their buying decisions will be driven by practicality, affordability and good value.
He also urged builders to exercise patience, persistence and friendly tenacity in working with customers, bankers, suppliers and other business associates. They are all in this together.
“The housing industry has always been a cyclical business,” he said. “A peak will always be followed by a downturn, which could be caused by many different local, state, national or international events.”
