The “Housing Glass” is Half Full - Buy Before It Fills Up

Now that the ink is drying on the “bailout bill,” how long will it take the housing market to recover; and to what extent? Fortunately, we know that based on the historic, cyclical nature of the housing market, there will be a recovery. “Historically, housing has led the nation out of economic doldrums”, said Lawrence Yun, National Association of Realtors (NAR) Chief Economist (quoted in a recent “E-article” by Walt Molony, at the National Association of Realtors’ website). “The faster (a free flow of credit) happens, the sooner we’ll see a broad stabilization in home prices that in turn will help the economy recover”, Yun said.

While we know a recovery is coming, unfortunately, we do not know when, or to what extent. Based on various reports released last week, it sure seems like rates and prices are at, or nearly at the “bottom of the glass”, signaling opportunists to “buy low” and start the recovery.

Here is what we do know.

(1) Mortgage rates went up nine basis points (9/100 of one percent) in a politically volatile week. According to BankRate.Com, the average benchmark rate for a 30 year home loan was up to 6.41 %, up from 6.32 % a week ago. 6.41 % is about where rates were last year at this time. Two weeks ago, mortgage rates were under 6%. Most housing experts seem to agree that despite some small up and down fluctuations; credit score requirements, debt-equity ratios, fees and rates are expected to rise.

(2) According to a new study by Foresight Analytics of Oakland, California (cited in a September 22nd article by Stan Bullard in Crain’s Cleveland Business) delinquency rates for single family construction and development loans for the Cleveland-Elyria-Mentor and Portage and Summit Metropolitan Statistical areas, have dipped slightly in the second quarter from the first quarter of this year, in comparison to rising rates in other parts of the country. The study cited by Mr. Bullard indicated that loan delinquencies by builders and developers in the Cleveland MSA edged down to 16% in the second quarter of 2008, from 16.2% at the end of the first quarter. In the Portage and Summit MSA, the rate slipped to 13.3% (from 13.6%). While these rate drops are indeed modest, in comparison, the national rate of such delinquencies rose 2.7% from the first quarter to the second quarter of 2008. This leveling off, in Northeast Ohio hopefully means that builders can soon afford to get back into the market and build more homes. In the meantime, however, our “buyers market” is expected to continue, at least until the glut of existing homes (old and new) continues to exist.

(3) Two national indexes show home sales and prices declining in the last month. According to the National Association of Realtors recent study (as reported by Walt Molony), existing home sales declined nationally by 2.2% from July to August,2008, and median home prices are down 9.5% in August, 2008 from a year ago. Regionally, existing home sales in the Midwest, however, rose .9% in August. Furthermore, the median price in the Midwest from a year ago was down only 5.6% or almost half of the national average. A Standard and Poor’s/Case-Shiller Home Price Index (cited in an October 1, 2008 Wall Street Journal Article by Kelly Evans), paints a somewhat gloomier picture with its Twenty (20) City Index. This Index showed a 16% decrease in prices from August 2007- August 2008. The “S&P/Case-Shiller Index” is heavily weighted by the number of sunbelt cities having a large proportion of foreclosures in sub-prime loans. Home prices in Las Vegas, Miami, Los Angeles, San Diego and San Francisco were down between 25 and 30% from one year ago.

When you add up what we do know (low mortgage rates, low prices of existing homes, and the number of new homes to be constructed expected to rise), the seemingly easy answer to the housing story, is if you can afford it, buy now- and buy low.

For more information on real estate trends in Northeast Ohio, check out Crain’s Cleveland Business at For more information on national real estate trends, consult the National Association of Realtors at

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