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Housing Market Update
Charlottesville Area Association of Realtors
October 26, 2011
Virginia Housing Development Authority
Presentation Outline
1. Housing market overview
–
–
Where we are
Constraints on demand
2. Mortgage market issues
–
–
Resolution of foreclosures and distressed inventory
Management of new lending risks
3. Addressing obstacles
–
–
–
Leveling the playing field
Rebuilding confidence
Helping first-time buyers
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1. Housing Market Overview
Where We Are
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Existing home sales in Virginia appear
to be re-stabilizing at a 13-year low.
Virginia Existing Home Sales
4-Quarter Rolling Average
40,000
3rd Qtr
2005
Federal
Home
Buyer
Tax
Credit
35,000
30,000
- 47%
25,000
2nd Qtr
2011
2nd Qtr
2008
20,000
Calendar Year Quarter
Source: Virginia Association of Realtors (VAR)
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-1
-3
11
11
-1
-3
10
10
-1
-3
09
09
-1
-3
08
08
-1
-3
07
07
-1
-3
06
06
-1
-3
05
05
-1
-3
04
04
-1
-3
03
03
-1
-3
02
02
-1
-3
01
01
-1
-3
00
00
-1
-3
99
99
98
98
-1
-3
15,000
Both the Northern Tier and Downstate
markets are searching for a new bottom.
Virginia Existing Home Sales
4-Quarter Rolling Average
25,000
4th Qtr
2005
2nd Qtr
2005
20,000
Federal
Home
Buyer
Tax
Credit
- 46%
Downstate Regions
15,000
2nd Qtr
2011
- 49%
10,000
Northern Tier
Source: Virginia Association of Realtors (VAR)
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-3
-1
11
-3
11
-1
10
-3
10
-1
09
-3
09
08
-3
08
-1
Calendar Year Quarter
07
-3
07
-1
06
-3
06
-1
05
-3
05
-1
04
-3
04
-1
03
-3
03
-1
02
-3
02
-1
01
-3
01
-1
00
-3
00
99
99
-1
5,000
-1
1st Qtr
2008
Home sales trends in Charlottesville are
closely tracking other downstate regions.
Existing Home Sales
(4 quarter rolling averages)
800
16,000
700
14,000
All Downstate
Regions
600
12,000
Charlottesville
Metro Area
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Q
3
11
Q
2
20
11
Q
1
20
11
Q
4
20
10
Q
3
Source: Virginia Association of Realtors (VAR)
20
10
Q
2
20
10
Q
1
20
10
Q
4
20
09
Q
3
20
09
Q
2
20
09
Q
1
20
09
Q
4
20
08
20
08
20
08
20
08
20
07
20
Q
3
8,000
Q
2
400
Q
1
10,000
Q
4
500
Area home prices are tracking statewide
changes, and have not yet found a bottom.
Annual Change in FHFA Existing Home Price Index
25%
20%
Virginia
15%
10%
Charlottesville Metro Area
5%
0%
-5%
-10%
-2
-4
-2
-4
-2
-4
-2
-4
-2
-4
-2
-4
-2
-4
-2
-4
-2
-4
-2
-4
-2
-4
-2
00 000 001 001 002 002 003 003 004 004 005 005 006 006 007 007 008 008 009 009 010 010 011
0
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
Calendar Year Quarter
Source: Federal Housing Finance Agency (FHFA)
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1. Housing Market Overview
Constraints on Demand
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The Fed’s efforts to keep mortgage rates at
historic lows have not revived the market.
Average Mortgage Interest Rate
30-year Fixed-Rate Loans
10.0%
Oct '93 - Jun '02 7.60%
9.0%
8.0%
Jun '02 - Dec '08 6.07%
7.0%
6.0%
5.0%
4.0%
Since Dec '08
4.79
3.0%
-94
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Ja
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-95
n
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-96
-97
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Ja
-98
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0
1
2
3
4
5
6
7
8
9
0
1
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Ja
J
J
J
J
J
J
J
J
J
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J
J
Source: Federal Housing Finance Agency (FHFA)
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Elevated unemployment remains a
substantial drag on housing demand.
Unemployment Rate
8.0
6.0
Virginia
Jan '10
6.6
4.0
Aug '11
5.5
Charlottsville Metro Area
2.0
May '07
2.1
Source: Virginia Employment Commission
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Real personal income has fallen, and
likely remains below pre-recession levels.
Annual Change in Charlottesville Metro Area
Inflation-adjusted Per Capita Personal Income
5.2%
3.9%
3.7%
2.8%
2.3%
1.4%
0.7%
-1.3%
2000
10
2001
2002
2003
2004
2005
2006
2007
Sources: U.S. Bureau of Economic Analysis (per capital personal income) and
U.S. Bureau of Labor Statistics (CPI)
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-1.6%
-1.7%
2008
2009
Homeowners with negative equity remain a
substantial barrier to existing home sales.
Estimated Share of Virginia Home
Mortgages with Negative Equity
24.3%
23.6%
22.7%
22.1%
23.4%
23.1%
23.3%
2009 Q4
2010 Q1
2010 Q2
2010 Q3
2010 Q4
2011 Q1
2011 Q2
Sources: CoreLogic, a real estate data and analytics company
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Student loan debt is unsustainably high,
and is a barrier to first-time home purchase.
The Class of 2011
is the most indebted ever.
Avg. Debt =
$22,900
Average student loan debt,
adjusted for inflation, is up 8%
from 2010, and has risen more
than 47% over the past decade.
Sources: National Center for Education Statistics
and Mark Kantrowitz of Fastweb.com and FinAid.org
• Student debt can carry
interest rates as high as
subprime mortgages, and is
hard to shed even through
bankruptcy.
• The Collegiate Employment
Research Institute estimates
that in 2011, the average
salary for new bachelor
degree holders is $36,866,
down 21% from $46,500 in
2009.
• The Charlottesville market is
especially vulnerable in light
of its dependence on higher
education and its large
number of recent graduates.
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2. Mortgage Market Issues
Resolution of foreclosures
and distressed inventory
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Northern Tier
The Good News:
Inner
Charlottesville’s foreclosure rate remains
relatively low compared to Virginia’s rate
and especially to the rate in the outer
part of the Northern Tier Region.
Outer
Trustee Sales and Lender Repossessions
August 2011
Northern Tier -- Outer
Greater Richmond
Hampton Rds-Chesapeake Bay
VIRGINIA
VIRGINIA
Northern Tier -- Inner (PD 8)
Charlottesville-Central
Charlottesville-Central Valley
Valley
Roanoke-Blacksburg-Lynchburg
Southern Tier
0.00%
0.10%
0.20%
0.30%
0.40%
Share of Homes with a Mortgage
Source: RealtyTrac and Census Bureau
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0.50%
Charlottesville’s inventory of distressed
properties is relatively low and falling.
Inventory of Lender-owned Homes
Culpeper County
Washington-ArlingtonAlexandria MSA (VA part)
VIRGINIA
Virginia
Richmond MSA
Sep 2010
Charlottesville
Charlottesville MSA
MSA
Sep 2011
Staunton-Waynesboro
Micropolitan Area
0.0%
0.5%
1.0%
1.5%
Share of Homes with a Mortgage
Source: RealtyTrac and Census Bureau
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2.0%
2.5%
The Bad News: Mortgage lending is driven
by macro conditions well beyond Charlottesville.
• Nationally, and in Virginia at large, the foreclosure
problem is far from over.
• Lender resources are focused mainly on managing
substantial and growing portfolio losses and
resolving the extremely large “shadow” inventory of
distressed properties.
• Federal policy and regulatory oversight of Fannie
Mae, Freddie Mac and the FHA have been heavily
focused on “back-ward looking attempts to address
the consequences of past errors”* rather than
helping to stabilize the nation’s housing market.
(*Lawrence Summers, Wall Street Journal, October 23, 2011)
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During the boom, household mortgage debt
sky-rocketed, and is still at an historic high.
Ratio of U.S. Household Mortgage Debt
to Gross Domestic Product (GDP)
80%
74%
70%
60%
48%
50%
Housing
Boom
40%
30%
Sources: Federal Reserve Flow of Funds Account Report (mortgage debt) and
Bureau of Economic Analysis (GDP)
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10
20
05
20
00
20
95
19
90
19
85
19
19
80
20%
High debt was enabled by rising prices.
Now, falling prices put many “underwater.”
80%
150
70%
Ratio of U.S. Household
Mortgage Debt to GDP
60%
125
50%
Rise in
"underwater"
borrowers
40%
100
FFHA Inflation-Adjusted
U.S. Housing Price Index
(1980 = 100)
30%
10
20
05
20
00
20
95
19
90
19
85
19
80
75
19
19
75
20%
Sources: Federal Reserve Flow of Funds Account Report (household debt), Bureau of Economic Analysis
(GDP), Federal Housing Finance Agency (price index), and Bureau of Labor Statistics (CPI)
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High debt levels became unsustainable
once home prices fell following the boom.
80%
6%
70%
5%
60%
4%
Ratio of U.S. Household
Mortgage Debt to GDP
50%
3%
Housing
Boom
40%
2%
30%
1%
U.S. Serious
Delinquency Rate
10
20
05
20
00
20
95
19
90
19
85
0%
19
19
80
20%
Sources: Federal Reserve Flow of Funds Account Report (household debt), Bureau of Economic Analysis
(GDP), Federal Housing Finance Agency (price index), and Bureau of Labor Statistics (CPI)
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High levels of mortgage debt must be
reduced in order to revive the market.
Nonetheless, there is no near-term resolution to
the substantial inventory of distressed loans.
– There is no consensus on how to allocate
the cost of considerable unrealized losses
between borrowers, investors and taxpayers.
– Any federal action to force principal write
downs would carry significant legal property
rights implications.
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The Administration is attempting to help
those who are current, but “underwater.
•
The Administration is again reforming the Home
Affordable Refinance Program (HARP) in order to
make it more workable for owners seeking to
reduce their mortgage costs.
•
The newly announced revisions expand eligibility
and reduce numerous disincentives for lender
participation.
•
If it is successful, then the plan will:
–
–
–
Stimulate consumer spending
Enable faster pay down of existing mortgages
Support economic growth which will benefit the housing
market
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In the short term, promotion of refinance
may undercut new loan originations.
•
The plan will not stimulate home sales.
–
–
•
It will not reduce the number of “under water” homeowners.
New mortgage originations could actually suffer if lenders
become overwhelmed by refinance demand.
Federal support of low GSE interest costs
continues to have a significant downside.
–
–
It impedes the revival of the private mortgage-backed
securities market thereby perpetuating federal dependency.
It undercuts the ability of state housing finance agencies to
fund first-time homebuyer programs, which are now the
main source of needed down payment assistance.
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2. Mortgage Market Issues
Management of New
Lending Risks
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Regulatory policy is overemphasizing the
importance of LTVs relative to other risks.
• During the boom, it was the layering of risk:
–
–
–
–
substantial loosening of debt ratios
undocumented income
use of “teaser” qualifying rates
loose HELOC lending
that led to skyrocketing defaults once falling prices
made it infeasible to refinance unaffordable debt.
• Nevertheless, federal regulatory and program
reforms continue to prioritize reducing allowable
loan-to-value (LTV) ratios, despite the inability of
current purchasers—especially first-time buyers—to
afford a sizable down payment.
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Historic experience with higher LTV
lending shows the risks are manageable.
• Following the Great Depression, the federal FHA and
VA loan programs enabled a whole generation of
young households to become successful
homeowners with only a limited down payment.
• Today, state housing finance agencies continue to
successfully manage high LTV lending programs
with loan performance records that regularly exceed
those of the conventional mortgage industry.
• Nonetheless, the continued ability of state housing
finance agencies to address first-time homebuyer
needs is jeopardized by unintended consequences
of broader federal policy.
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3. Addressing Obstacles
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Leveling the Playing Field
• Current federal interest rate and regulatory policy is
creating an unlevel playing field and is contributing to
increased concentration of mortgage lending among
the largest national lenders.
• Interest rate policy is making it extremely difficult for
portfolio lenders such as state housing finance
agencies to actively contribute to market recovery.
• These are lenders that, by and large, did not
participate in the poor lending practices that
characterized the peak of the housing boom.
• They know their markets and are able to prudently
and effectively bring first-time buyers into the market.
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Rebuilding Confidence
• The market is at its nadir and pessimism reins. In this
environment, industry partners must work together to
re-instill the confidence of buyers.
• A new analysis of data from the Michigan Survey of
Consumers by the Federal Reserve Bank of Boston,
finds that younger households are showing especially
low levels of confidence about homeownership.
• Continuing industry support for homebuyer education
programs and K-12 financial literacy classes are critical
to building healthy demand among young buyers.
• Likewise, resolving the student loan crisis is a needed
long-term step to ensure the confidence and ability of
young households to take on mortgage debt.
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Helping First-time Buyers
VHDA’s is supporting Charlotteville’s housing market by:
– Continuation of high LTV lending
Our “FHA Plus” program provides an FHA-insured 1st mortgage
with a VHDA piggy-back 2nd mortgage for down payment and
closing cost assistance. Both loans have 30-year terms and the
carry the same interest rate.
– New increased eligibility limits to serve widening need
Sales price: $325,000
Income: $87,400 (1-2 people) / $101,200 (3 or more people)
– Requiring homebuyer education of all borrowers
VHDA supports statewide access to free homebuyer education—
including on-line classes—for any interested participant.
– Providing in-house servicing for all loans
VHDA is committed to sustaining long-term homeownership
through pro-active loss mitigation practices.
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Summary of Key Points
1. The worst of the housing decline is behind us.
Nevertheless:
•
•
The market is still struggling to find a firm bottom.
A significant recovery is not imminent.
2. The obstacles to recovery are considerable.
•
•
They reflect a lack of political consensus on
fundamental issues.
Many are beyond the scope of direct industry
influence.
3. The Charlottesville area faces challenges.
•
•
There are barriers to bringing first-time buyers back
into the market.
VHDA is taking actions to bolster the market and
support a sustainable recovery.
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