President of US Realtors Association testifies before Senate
Testimony of National Association of Realtors proves that housing market is cooling rapidly in many areas in the U.S. and that realtors see significant downside if cost of borrowing goes from the current 6.5% to 7.5-8% range.
housing market economy mortgage sales nationwide “mortgage rates” price homebuyers FHA Florida growth “real estate” Subcommittee “National Association”
Speech summary by Copernic:
Chairmen Allard, Bunning and Ranking Members Schumer and Reed, and Members of the Subcommittees, My name is Tom Stevens, and I am the former President of Coldwell Banker Stevens (now known as Coldwell Banker Residential Brokerage Mid-Atlantic) — a full-service realty firm specializing in residential sales and brokerage.
Since 2004, I have served as senior vice president for NRT Inc., the largest residential real estate brokerage company in the nation.
As the 2006 President of the National Association of REALTORSÂ®, I am here to testify on behalf of our nearly 1.3 million REALTORÂ® members.
We thank you for the opportunity to present our views of the current real estate market as well as prospects for the future.
NAR represents a wide variety of housing industry professionals committed to the development and preservation of the nation’s housing stock and making it available to the widest range of potential homebuyers.
The Association has a long tradition of supporting innovative and effective housing programs and we continue to work diligently with the Congress to fashion housing policies that ensure housing programs meet their mission responsibly and efficiently.
For the past five years, the housing market has been a steadfast leader in the U.S. economy.
Overall, the housing sector directly contributed more than $2 trillion to the national economy in 2005, accounting for 16.2 percent of economic activity.
After five years of outstanding growth and being the driving force of the U.S. economy, the housing market is undergoing a period of adjustment.
The inventory of unsold homes on the market is at an all-time high of 3.9 million, which is a 40 percent rise from a year ago.
While recent developments raise concerns, it is important to remember that the housing market varies significantly across the country.
The remaining two-thirds of the country is experiencing lower sales with some states feeling acute adjustment pains.
Sales are down significantly in Florida, California, Arizona, Nevada, Virginia, and Maryland.
these areas are vulnerable to outright price declines, particularly if interest rates were to rise further.
The industrial Midwest region did not participate in the nationwide housing market boom of the past five years due to weaker job market conditions.
Home price-to-income ratio, home price-to-rent ratio, and more importantly, mortgage debt servicing cost-to-income ratio have greatly increased in some markets to worrisome levels.
Markets in Florida, California, Arizona, Nevada, Virginia, and Maryland exhibit trends far above the local historical norm, thus it would not be surprising for these markets to experience a price adjustment.
However, these states have solid job growth — Because of solid job growth, price declines are likely to be short-lived as new job holders provide demand and support for the housing market.
If the mortgage rates were to rise measurably – to say 7.5 percent or 8 percent from the current 6.5 percent – for whatever reasons (be it Chinese dumping dollars on the market, higher inflationary expectations, or monetary tightening by the Federal Reserve) then the housing market would certainly come under more pressure and many markets would likely undergo price declines.
Another factor is the insufficient presence of Government Sponsored Enterprises (GSEs) and the Federal Housing Administration (FHA) in the high priced regions.
The increases in GSE/FHA loan limits have not kept pace in places like California, Florida, and parts of New York among others.
For example, loan limits rose 7.8 percent in 2005 while home prices rose 19 percent in Los Angeles, 25 percent in the D.C., and 30 percent in Miami.
Consider, for a moment, that FHA’s share of loans in Los Angeles went down from nearly 20 percent in 2000 to essentially zero today.
As we have seen in the past, in soft local and regional markets, FHA has filled significant gaps in the private sector lending market, becoming the predominant tool to achieve homeownership and helping to carry regions out of an economic downturn.
The unprecedented number of strong hurricanes hitting the Florida shores in 2004 and 2005 has resulted in a dysfunctional insurance market where premiums have either increased – literally through the roof – or are simply not available.
Full speech is here