• New Durham and Triangle Housing Numbers

    October 12, 2009 // Comments Off

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    The Triangle Multiple Listing Service has published the newest market stats, based on MLS activity. If you don’t want to read the fine details, I’ll summarize: there isn’t much good news here.

    Still with me? OK, let’s dive in…Durham is feeling the effects of the housing downturn, as is the rest of the Triangle. The downtrend is now hitting segments of the market that we hoped would not be affected.

    February Home Sales
    Sales in February were down almost 27% compared with February 2007. That puts Durham in the worst position of the major Triangle counties:

    Durham County -26.7%
    Johnston County -3.2%
    Orange County -16.7%
    Wake County -15.6%

    Breaking sales down by price groups offers some explanation as to why Durham is down so much more than other areas. 81% of the February sales in Durham involved properties priced under $250,000. First-time homebuyers typically buy in the sub 250k price range. Some of these buyers have had their financing options severely curtailed by the issues in the mortgage market. Others sense that aggressive price reductions are on the horizon, and want to see how much lower the market will go.

    In contrast, 47.5% of buyers in Orange County and 36.4% of Wake County buyers paid more than $250,000 for their homes.

    Johnston County shares Durham’s price spread – 84% of their sales were in the under $250,000 range. Johnston has become a preferred bedroom community for workers in Raleigh and RTP – before recent events, it overtook Durham’s position as the Triangle’s second most active new construction market. This may be why its decrease in sales is minimal.

    Market Indicators
    I was surprised when I opened the latest market update from Stacey Anfindsen, the real estate analyst for the Triangle MLS. Mr. Anfindsen has been realistic about the excess inventory in the market and the need for price drops. However, he forecasted that the strength of the Triangle job market, low interest rates, and relatively affordable housing stock would shield us from the worst of the fallout.

    The sub-title of this month’s report: “Is there any good news?”. Which usually means there isn’t.

    First line of the report: “Our local market seems to have finally fallen prey to the conditions seen nationally. While year end numbers were fairly positive, 2008 has not gotten off to a good start.”

    The new numbers are a bit of a blindside. Up until the end of 2007, the market remained pretty balanced, even though there were a lot of homes for sale. Sales prices continued to rise. There was a five month supply of homes on the market – wonderful, given that a 6 month supply is considered a perfectly balanced market. And again, interest rates were comparatively low. While the subprime market was tanking, we were blessed with a well educated and well compensated workforce that could still access financing.

    But at the start of 2008, the market changed. Sellers came in; buyers pulled out. Durham now has an 11 month supply of homes on the market (compared with 10 for the Triangle as a whole). Durham has three big trouble spots right now: homes priced over $250,000 (13-18 month supply), condos (34 month supply), and townhomes (19 month supply).

    Mortgage Bailout?
    The Senate is currently considering a $15 billion dollar housing relief package to assist homeowners and local governments in battling the depressed housing market. Although a final deal is still being negotiated, here are the current major points and how they might impact the local market:

    New FHA guidelines. Will it help Durham? No
    The government is advocating an increase in the amount buyers can borrow under the FHA program. The required downpayment on an FHA backed loan will increase from 3% to 3.5%. FHA backed loans are not typically credit score driven, although they do have underwriting standards (like no collections on your credit or no late payments in the past year). Many buyers opted for subprime solutions because the FHA guidelines would have required them to delay their purchase while addressing their bills and credit. Today, even with a more generous loan amount, that same buyer will still have to work to meet the guidelines – they won’t be running out to buy a house tomorrow. FHA backed loans are a small segment of the market here – I don’t expect this provision to have a major impact.

    Bonds for refinancing. Will it help Durham? Maybe
    The states get $10 billion dollars in tax-free municipal bonds. The proceeds can be used to help homeowners refinance. Usually, this type of government aid is limited to first-time homebuyers and homes in distressed areas. I have seen some wonderful first-time homebuyer programs come out of government subsidies. If the same opportunities were offered for people wishing to refinance, that would be great. The challenge: the best first-time homebuyer programs require that buyers clean up their credit and attend homebuyer education courses BEFORE they get the money. How do we ensure that subprime borrowers get that framework for success in a refinance?

    Tax credits for buying distressed properties. Will it help Durham? Yes
    I’m not a tax policy wonk, so I’ll play this one at surface level. There will likely be a rise in newer foreclosures and short sales that are in good condition. Buyers of these properties will probably get them at a discount. Add on a 7k tax credit, and it’s even more of an incentive. Who doesn’t love to save money?

    Property tax deductions for non-itemizers. Will it help Durham? Yes
    Again, another no-brainer. As the spouse of an accountant, I never realized how many taxpayers don’t itemize on their tax return. Some of us comb through every gas station receipt looking for one more write-off. For those that speed through your return in 15 minutes at the local storefront tax prep place, you could claim an easy deduction for your property taxes – $500 for single filers, $1000 for couples filing jointly. In a year where many have seen their tax assessments rise, this would be welcome news.

    Tax breaks for homebuilders and related businesses. Will it help Durham? Yes
    Yes, a little. Durham hasn’t experienced the pace of new home construction and the influx of builders Wake County has. Of course, helping to keep the builders that are here solvent would be good, and a healthier market in Wake might mean a healthier market in Durham.

    Rehab grants to local and state governments. Will it help Durham? No
    Unfortunately, our local government has shown time and again that it lacks the experience and bandwidth to successfully undertake rehabilitation of residential real estate. To its credit, the city has reorganized its troubled housing department. But the new organizational structure has not been tested on a rehabilitation of any quantity.

    More money for consumer counseling. Will it help Durham? No
    Right now, lenders are working with delinquent borrowers on a voluntary basis, and they are not volunteering much in the way of helping homeowners keep their homes. If a homeowner has a mortgage that eats up 50% or 60% of their monthly income, you are not going to counsel them out of that situation. Only if lenders have the same motivation as borrowers will we get both sides to the table to find a meaningful solution. Right now, lenders are not set up to accept the intervention of counselors on a large scale – they don’t have the expertise in negotiating, they aren’t organized to conduct long term conversations with their clients, and they are bombarded with the task of handling borrowers who are already in the throes of foreclosure.

    More information for borrowers. Will it help Durham? Yes, if…
    Now this would be a great place to have a counselor. Loan documents that spell out in plain English the terms of the loan. A law (with teeth) that requires the lender to give those documents to the borrower a week before closing, and to not change them after that. A counselor that has reviewed the borrower’s spending habits, provided information and education, and is there to review the loan documents with the borrower. I’m thinking that the proposed measure provides none of the things I just mentioned (aside from loan docs in plain English), but at least it’s a step in the right direction.

    So that’s the story. The market has too much inventory, and we have to work through it. The local market is not strong enough to overcome the pressure of the national market. The federal government is trying to figure out how to help without sending us into a decade long tailspin (Google Japan housing bubble for a cautionary tale). We’ll see what happens as we move into what is traditionally the most active three months in the Durham real estate market.

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