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Housing Recovery Slows

Economic recoveries usually begin at home, specifically with the housing industry and the construction and creation of new homes. (You can build a house but families create a home. Both have significant multiplier effects on the economy.) As we’ve discussed here before, housing has lead the economic recovery in 6 of the past 8 recessions with the other two being war driven. Given the current status of the economic recovery and housing’s role, maybe we should be hoping for another war.

Obviously no sane person would truly wish for such a thing but the fact remains that a robust economic recovery remains an elusive thing and housing has not been able to assume its customary role in leading the rebound. Our local market is reflecting the malaise of the national housing market with declining sales and flattening prices. While that’s both good and bad for our local market, it’s impact nationwide is a cause for concern.

Federal Reserve Chair Janet Yellen said on May 7th that the U.S. economy was still in need of lots of support given the “considerable slack” in the labor market, adding that the housing sector’s weakness and geopolitical tensions posed risks. Yellen said she expected the economy to expand at a “somewhat” faster pace than last year, but flagged weakness in the nation’s housing sector and the possibility of heightened geopolitical tensions or the re-emergence of financial stress in emerging markets as potential risks. “The recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery,” she said.

So why is the market flattening at a time when, from a historical perspective, it should be soaring? In a word – GOVERNMENT! Consistent inconsistency, conflicting agendas, unnecessary and restrictive knee-jerk regulation, market manipulation and sinking consumer confidence have been the hallmarks of this administration for the past 6 years – and I’m not just pointing the finger at Pres. Obama. Both Republicans and Democrats have provided mixed signals on everything from the future of the GSE’s to mortgage interest deductibility, short sale debt relief, flood insurance and interest rates. It’s in, it’s out, they’re here, they’re gone, you’re covered, you’re not – how’s a consumer to feel any degree of confidence when our leaders waffle more than IHOP?

Need more evidence? The Federal Reserve Board recently released its April, 2014 Senior Loan Officer Opinion Survey on Bank Lending Practices. The survey addresses changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months.

According to the household component of the April survey results, banks eased their lending standards for auto loans and credit cards. At the same time, a net share of bank officers reported having observed rising demand for auto loans and credit cards. In contrast, a net share of bank officers reported that their bank had tightened lending standards on prime residential mortgages and a net share reported having observed a decline in demand for prime residential mortgages.

DUH! Right now there’s an office full of highly paid people sitting in D.C. trying to figure out what that means.
At the same time, the GSE’s (remember that stands for Government Sponsored Enterprises) have aggressively reduced the cap rate for conforming loan limits. Riverside County was one of the most heavily impacted by this with a drop of nearly 30% meaning that buyers in Temecula, Murrieta and Canyon Lake can no longer purchase a median price home in our community with a GSE conforming loan. That worked real well the last time that happened.

At the same time, some in government are bemoaning the fact that minorities who were disproportionately impacted by the housing crash have also benefitted the least from the nascent recovery. They’re arguing that lending standards should be relaxed, down payment requirements should be waived, and credit scores and ability to repay should not be part of the consideration. That also worked real well last time.

At the same time, the FHA (a government entity) is deciding whether it should play by different rules than Fannie & Freddie when it comes to condo purchases. Currently about 72% of the 26 million condo housing units nationwide have some form of transfer tax. Unlike most private transfer taxes, or fees, which have no nexus to the housing stock and simply benefit some group or another, most condo transfer fees are tied to the association for the benefit of the development. Fannie & Freddie recognize this but FHA is set to implement rules, possibly as early as June, which would restrict FHA financing for condo purchases with a transfer fee attached. Already impacted by the inability to purchase in many developments due to rental ratio restrictions, this puts homeownership further out of reach for many first time buyers and seniors. That’ll work well.

So, when will housing recover? Next I’ll report on my recent trip to Washington D.C. where we the opportunity to talk with many of the best and brightest our industry has to offer including our own Chief Economist. You may look forward to my next report with the full knowledge that I will have all the answers and be able to forecast with great certainty exactly where we’re going. Or not.

Gene Wunderlich is the Government Affairs Director for Southwest Riverside County Association of Realtors. If you have questions on the market please contact me at GAD@srcar.org  or to keep up with the latest legislative and real estate trends go to http://gadblog.srcar.org/

Written by Gene Wunderlich, Sr. Staff Writer

Prior to his retirement in 2021, Wunderlich served on a number of local non-profits and boards. He spent the past decade as a legislative advocate for the housing and real estate industries as well as a coalition of local Chambers of Commerce advocating on behalf of small and local businesses.

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