Economists agree that the door's wide open for housing surge
Providence Journal - April 30, 2009
By Paul Edward Parker, Journal Staff Writer
WARWICK - The national housing market has returned to its normal balance after a buying frenzy in the first part of this decade led to a collapse last year, an economist with the National Association of Realtors said Wednesday afternoon.
That can set the stage for buyers to return to the market and house prices to stabilize, S. Lawrence Yun said at a conference sponsored by the Rhode Island Association of Realtors.
At today's mortgage rates, he said, a median-priced house is as affordable to a median-income household as it was in 1998, before the run-up in housing prices.
"It's more affordable to buy a home than ever," Yun said. "There's no reason for home prices to fall. It's a psychology game that will force prices to fall."
Past recessions have not had a direct effect on the housing market, he said, as other factors, such as interest rates, have been stronger in determining the direction of the market.
Even in a recession, Yun said, 85 percent of workers are employed. Even factoring out another 25 percent whose jobs may be threatened, that leaves 60 percent who are secure in their jobs. "And they are in a position to respond to incentives," he said. "In past recessions, they have always responded to incentives."
Yun asked his audience, "Do we have financial housing incentives?"
And he answered his own question, pointing to historically low 4.8-percent mortgage interest rates and an $8000 tax credit, enacted in February, for first-time housebuyers.
"So far, we have not seen any measurable impact yet" from the tax credit, he said. But, he added, the house-buying process tends to take three to five months from the decision to buy to a closing, so it might be some time before the federal stimulus shows signs of working.
For the Providence housing market, Yun said conditions are right for recovery to begin. "The buyer should be coming back."
He said he thinks Providence will be the first housing market in the Northeast to emerge from the housing slump.
Yun predicted that the number of houses sold in the second half of this year will be 10 percent to 20 percent higher than the number sold in the same period last year, although he acknowledged that many of those would be "distressed" sales, such as properties auctioned by a bank after foreclosure.
"We are finished with this bubble burst, and now we are back to normal," he said. "I see a light at the end of the tunnel. I think the worst in housing is happening now or has already passed."
A similar assessment of the local economy was offered by Leonard Lardaro, a University of Rhode Island economics professor who also spoke at the conference.
"It looks like Rhode Island has begun the first step, and only the first step, in the process of recovery," Lardaro said. "We're not beginning an actual recovery; we're beginning the process of recovery. As we're going downhill, we're going downhill more slowly."
As did Yun, Lardaro predicted some economic light. "Things are starting to turn around slowly," he said. "It's going to get better and better as the year goes on."
He predicted the Rhode Island economy would recover in the first three months of next year, driven largely by federal stimulus spending, low gasoline prices and low interest rates. He said he has already seen signs of a rebound in retail sales, the labor force and manufacturing wages.
In answer to a question by Chris Healy, a Realtor, Lardaro said now would not be a bad time to buy real estate " at the right price. I'd be thinking about buying a house."
