Real estate made it to the top of the news again this week. Countrywide, one of the nation’s largest home lenders, reported that the increase in defaults that was limited to the sub-prime market was creeping into its prime lending portfolio. That sent a shock through the credit markets. By the time the story wove its way into the mainstream media, the impression was that mortgage money is drying up. That’s really not the case at all for borrowers with good credit and a down payment, two things that up until a few years ago you needed to buy a house. Personally I’m glad that mortgage lenders are starting to come to their senses and imposing some discipline on themselves. If you’ve been a regular reader of this blog, you know I’m pretty conservative on this score. On more than one occasion in the past few years I’ve had a heart-to-heart talk with clients — while the bank is saying you can afford such-and-such a house under these terms (typically some convoluted adjustable rate or negative amortization mortgage with little or no down payment), I’ve been pretty up front saying that I don’t think they can, especially when the rates start to readjust.
Now, before you shout that I’m some kind of elitist, who only thinks that people who are well off should buy houses, that’s not the case at all. New York State has one of the best programs for first time home buyers. SONYMA, the State of New York Mortgage Authority guarantees loans for low and moderate income NY home buyers at below-market interest rates. SONYMA also permits some closing costs to be rolled into the mortgage, to increase affordability. But there are two key factors that differentiate SONYMA loans from regular commercial "adjustable" rate mortgages. The loans are fixed rate, meaning no surprising payment adjustments down line. And they require buyers to have at least 3% of their own money in the deal. I’d really like someone to research a comparison on loan defaults in New York state between SONYMA buyers and those who went with riskier adjustable commercial loans.
The other big news was the monthly release of the National Association of Realtors’ Existing Home Sales data for June. Nationally, the picture was pretty dismal, and the media took delight in reporting the bad news. But like most sound-bite news reporting, they just painted the broadest brush stroke.
Nationally, existing home sales were down 11.4% from the same period a year before on a seaonally adjusted basis. But there were wide regional variations. The west and south both posted double digit declines, while the northeast was the healthiest region, with a sales drop of just 7.3%. Now that’s nothing to sneeze at, but its far less than the sharp 19.1% decline in the west, the worst performing region.
Price wise, prices in the northeast were up 1.8% over the same period a year earlier, significantly outperforming other regions. And as I’ve said again and again, even within these large regions there are submarkets with widely varying performance. Ask a homeowner trying to sell on Long Island what the market’s like, and you’ll likely hear that its the pits. Ask someone selling in Manhattan and you may get a very different answer. A lot of readers have been following my tale of looking for and buying a place in the Bronx. I was in a multiple bid situation (and won). The fact that there was a lot of interest in the apartment wasn’t a surprise — it’s well maintained, affordable and appropriately priced.
The same is true here in Sullivan County. Houses that are attractive, affordable and appropriately priced for their target markets are generally selling.
Many Realtors "blame" the media as the cause for the housing downturn. That’s just not true, although it certainly contributes to and reflects a market psychology. Fundamentals, like supply, the cost of mortgage money, affordablity and job strength are tremendously important. What is a little disconcerting, though, is how the real estate numbers are reported. The headlines scream, "Worst housing decline in 4 years", with an 11.4% year over year drop nationally. In the northeast, as I mentioned, the drop was smaller, just 7.3%. The amazing statistic is the flip of that — 93% of the activity we saw last year is happening this year. Correct me if I’m wrong, but to me that’s just not a bust. (To be fair, 2006 wasn’t the peak year, 2005 was. And seasonally adjusted sales in the northeast are down 14% from frenzied peak of that year.)