Housing recovery arrives in Virginia
Published July 15, 2012After five years, we can finally say that yes, Virginia, the housing recovery is here. I don’t expect you to believe that, of course. It’s easy to dismiss someone from a Realtor association who says, “The housing market is doing well!” So please take everything here with a sizable chunk of salt. Read on. Read the news. You’ll see there are simply too many positives to ignore. We’ve passed bottom. We are in a recovery. Being in a recovery, of course, doesn’t mean every metric is going up. Home prices, for example, could still go down, and there will always be speed bumps. But consider the data. * * * * * Unemployment is down. Virginia has the ninth-lowest unemployment rate in the country. It’s not as low as we’d like, but it’s well below its peak and has been dropping steadily. More jobs mean fewer delinquencies, fewer foreclosures and more people able to buy. Delinquencies are down. And yes, more people are able to pay their mortgages today: Fannie Mae, Freddie Mac and the Mortgage Bankers Association all report delinquency rates dropping since early 2010. Interest rates are still crazy low. Since 2010, mortgage interest rates have been at record low levels, bringing iffy buyers into the market. And even more will enter if rates start to inch up — they won’t want to miss out on the lowest rates in history. Lending is loosening. The Federal Reserve found this spring that demand for mortgages is increasing. Lenders are responding by — cautiously — looking to offer more loans. Credit-information service Experian recognized this and launched a program to help lenders identify solid “near-prime” clients — in other words, “regular folks with normal credit.” HARP is working. The Home Affordable Refinance Program has let millions of people refinance at today’s lower rates. That puts more money back into the economy, which means jobs, and jobs means housing. Rents are rising. At one as a less-expensive alternative to owning. But increased demand has pushed rents up, sometimes to record levels. Result: The cost of owning compares more favorably to renting than at any time in decades. * * * * * Short sales are getting more efficient. Federal intervention earlier this year required lenders to act more quickly when an owner requested a short sale — selling a home for less than is owed on the mortgage. The result is that in most of Virginia there are more short sales than foreclosures — and that’s good for everyone. Inventory is down. Nationwide, listings of homes for sale are down more than 20 percent from 2011, and they continue to drop. Virginia’s statewide inventory was down more than 37 percent in May from a year before. That’s a sign of excess inventory being absorbed by the market — exactly what we’d expect in a recovery. Buyers are returning. Low prices, low rates and rising confidence mean more people are out looking to buy. Some areas are seeing multiple bids become the norm. Most are seeing listing prices rise as sellers gain confidence. And investors are pouring money into the market in what The Wall Street Journal called a “gold rush” to buy homes and turn them into rentals. Forward-looking indicators are up. Whether you’re viewing stats from homebuilders, the Census Bureau or Virginia Tech, the trend is the same: Permits and construction are both rising. So, too, are mortgage applications — in June they hit their highest level since 2009. Housing starts have risen more than 36 percent from the market bottom, and residential construction spending was up more than 18 percent in May from a year ago. * * * * * The end result? Home sales are up — it’s that simple. And more sales mean more money into the economy (think movers, cleaners, repair workers, landscapers, all of whom can get work out of every house sold). In Virginia, since 2010, home sales every month have been above those of the year before. In Southwest Virginia, sales were up a whopping 38.2 percent from 2011 to 2012. Yes, prices have dropped, but that’s because the housing bubble inflated them above realistic and rational levels. They’re dropping back to historical norms, as they should. A recovered market will be one with prices at about the level they were before the bubble began to inflate. One worry has been that foreclosures would drag down property values. This did happen to a degree, with some regions faring worse than others. But the foreclosures also helped to bring prices down to historical norms more quickly. And then something good happened: Foreclosure prices began to rise. In 2012, median foreclosure prices are up 5.5 percent over the past year due to high demand. That’s a sign of a strong market. All that said, this is economics. There are no guarantees, and there are plenty of things that could derail the recovery, no matter how strong it is. Rising interest rates. A gridlocked Congress. The European mess. Plus unemployment, natural disasters, gas prices, transportation issues — they all impact housing, and they’re all impossible to predict. Yet all that said, the housing economy’s direction is, now, firmly forward. And it’s gaining steam. Bet on it.