Interesting Info from Recent Economic Summit
Every year, the Northern Virginia Association of Realtors (NVAR) hosts an economic summit in which a review of economic trends, especially as they affect housing, is presented. This year's panel of speakers included such notable experts as Dr. Stephen Fuller, Director of GMU's Center for Regional Analysis; Dr. Frank Nothaft, Chief Economist at Freddie Mac; & Dr. Lawrence Yun, Senior Forecast Economist at NAR (the National Association of Realtors). The information presented by these individuals provided some much-needed explanation to the current housing market in the local DC area. I'd like to share some of their observations with you (interpretations mine!):
- the NAR "Affordability Index" tracks home-buying affordability based on 3 factors: mortgage interest rates, house prices & family income. Since interest rates continue to be low by historical standards and family income continues to rise in the DC area, that leaves the previously escalating house prices as the key factor causing falling affordability. This low level of affordability is primarily responsible for the recent price declines in many areas as the market for high or over-priced homes shrunk.
- The low affordability referenced above has resulted in lower demand for housing which has resulted in a dramatic (33%) reduction in new single-family housing (houses, townhomes, condos) construction starts. This current reduction in new construction will impact pricing in the future as demand eventually catches up with and surpasses the housing supply.
- Annual appreciation rates in home prices vary regionally across the U.S. as you can imagine, but they also vary pretty dramatically across areas within a region. In Northern Virginia, for example, the recent price pull-backs that we have experienced have been most pronounced in the outer suburbs (Loudoun & Prince William Counties) and less severe or even nonexistent the closer you get to DC (Arlinton, Alexandria & Fairfax).
- One huge factor exacerbating the already-tough housing market is the rash of foreclosured properties coming to the market, a relatively recent phenomenon here in the DC area where annual appreciation was running greater than 20% annually during the height of the housing market from approximately 2003 through mid-2005. A primary cause of these foreclosures is the more risky nature of loans (often "subprime") that were taken out at the height of the housing market that allowed many buyers to "afford" homes at the heightened prices. The interesting fact here is that subprime loans accounted for approximately 60% of foreclosures initiated in 2006 & early 2007 but they comprise only about 14% of loans being serviced. Job loss or curtailment of income was cited as the leading hardship reason among delinquent borrowers.
More to follow soon!
- the NAR "Affordability Index" tracks home-buying affordability based on 3 factors: mortgage interest rates, house prices & family income. Since interest rates continue to be low by historical standards and family income continues to rise in the DC area, that leaves the previously escalating house prices as the key factor causing falling affordability. This low level of affordability is primarily responsible for the recent price declines in many areas as the market for high or over-priced homes shrunk.
- The low affordability referenced above has resulted in lower demand for housing which has resulted in a dramatic (33%) reduction in new single-family housing (houses, townhomes, condos) construction starts. This current reduction in new construction will impact pricing in the future as demand eventually catches up with and surpasses the housing supply.
- Annual appreciation rates in home prices vary regionally across the U.S. as you can imagine, but they also vary pretty dramatically across areas within a region. In Northern Virginia, for example, the recent price pull-backs that we have experienced have been most pronounced in the outer suburbs (Loudoun & Prince William Counties) and less severe or even nonexistent the closer you get to DC (Arlinton, Alexandria & Fairfax).
- One huge factor exacerbating the already-tough housing market is the rash of foreclosured properties coming to the market, a relatively recent phenomenon here in the DC area where annual appreciation was running greater than 20% annually during the height of the housing market from approximately 2003 through mid-2005. A primary cause of these foreclosures is the more risky nature of loans (often "subprime") that were taken out at the height of the housing market that allowed many buyers to "afford" homes at the heightened prices. The interesting fact here is that subprime loans accounted for approximately 60% of foreclosures initiated in 2006 & early 2007 but they comprise only about 14% of loans being serviced. Job loss or curtailment of income was cited as the leading hardship reason among delinquent borrowers.
More to follow soon!
posted by Bob Clark at
2:18 PM
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