"Real estate is all local is the theme that Dr. Lawrence Yun, chief economist for the National Association of Realtors, stressed throughout his presentation to a crowd of bankers, mortgage lenders, homebuilders, school officials, business leaders, political representatives and Realtors on November 2.
Potential homebuyers and sellers have been barraged with negative news concerning the state of the housing market: the sub prime market has imploded, housing prices have declined, housing inventory has increased and new construction sales have dramatically weakened. Consequently, consumers have shown a change in buyer sentiment and have lost confidence in the housing market. The psychological impact has been fearsome.
Is it justified? It all depends on where you live. According to Yun, the national statistics on housing have been skewed based on major sales declines in California, Florida, Arizona and Nevada, due to investors and speculators who drove up prices to double-digit appreciation and caused a boom, ultimately creating an artificial market.
"There is no bubble in Lexington," stated Yun. "Consumers should be concerned about home value, not the number of transactions that occur. Lexington's market is very affordable; especially if one looks at the mortgage obligation to debt ratio, there is not a huge gap. Lexington's financial strength is rising, wages have picked up and unemployment levels are low."
In fact, Yun suggested Lexington's market may be even undervalued. LBAR President Becky Murphy agreed with Yun and said, "The Central Kentucky real estate market is very affordable and stable. LBAR Realtors are experts on the local market and offer consumers priceless service and professionalism so that they can buy or sell a home at the right price."
So just how are we doing in Fayette County? The Lexington-Bluegrass Association of Realtors (LBAR) MLS activity reported that year-to-date (Sept. 30, 2007) 3,870 sales, totaling $744,411,249, positively impacted the Fayette County economy.
Fayette County closed sales are down 8 percent year—to-date (September 2007) and down 22 percent versus September 2006. The National Association of Realtors (NAR) posted closed total U.S. sales activity at the end of September down 22.7 percent as compared to last September. Fayette County median sales prices are unchanged year-to—date compared to one year ago and compared with September 2006. According to the NAR, U.S. median prices were down 4.2 percent.
Fayette County's average days on market are up 17 percent when compared with September 2006 and elevated 25 percent year-to-date compared to one year ago. LBAR's 10.8 months inventory is in line with the NAR statistics of 10.5 months inventory. LBAR attributes the higher average days on market figure to increased inventory and mortgage industry factors.
Yun does acknowledge that there are some troublesome areas that continue to affect the housing market: rising oil prices and foreclosures. Yun stated, "Oil prices have been a major drag on the economy; it is a tax on consumers. It goes to tax revenue coffers overseas. Foreclosures are mainly confined to the subprime market, which is about 9 percent of the entire market, which affects less than 10 percent of the homes purchased and in turn comprises one-half of the total foreclosure market."
He stresses that it is important to place the current housing market in perspective and that 2007 will be the fifth highest year on record for existing home sales. "Although sales are off from an unsustainable peak in 2005, there is an historically high level of home sales taking place this year — a lot of people are, in fact, buying homes. The NAR is predicting existing home sales to be down 7 percent year-over-year at the end of 2007, but that is coming off a five-year boom. Sales levels will be close to levels in 2002, far closer to normal than what we have seen over the past four years."
Yun believes that now is an opportune time to buy. Conditions in the market are improving for the consumer. The investor has disappeared from the market because of lower margins. Rents are rising. There is a large selection of housing inventory for prime borrowers coupled with low favorable conforming rate loans. For the jumbo borrower, rates are coming down, and for non-prime borrowers, the movement is away from the risky subprime loans into safer FHA loans where major reform in the FHA program is taking place. In addition, the cutback in new home construction thins out inventory and strengthens existing home prices. With rising exports due to the weak dollar, mortgage rates near a 45-year low and a viable stock market, he feels we are on our way to a positive correction in the industry.
On a national level, Yun forecasts that the future housing market will be healthier. He anticipates that prices will rise about 2 percent due to a significant drop in new home starts and existing home sales will make a comeback and rise to 6.1 million or 6.2 million units, up from about 6 million units in 2006.
Real estate is cyclical; it is based on supply and demand. Yun predicts that, once the psychology catches up to our real market conditions, a pent-up demand will be released and consumer confidence will be restored. He emphasizes, "Homeowners in it for the long term nearly always come out ahead in building wealth."
"