Market Update: A 2010 Recap and Looking Ahead to 2011 Ron Peltier, Chairman and CEO of HomeServices of America
Increasing Stability without ‘Artificial’ Incentives Indicate that Housing Industry is Stabilizing
Our end-of-year analysis shows that the housing industry came very close to what we anticipated would occur in 2010 – a strong first half fueled by tax credits, and a subsequent slowdown as incentivized buyers were unable, or not confident enough, to delve into the market.
As a result, 2010 will end with slightly fewer total sales than in 2009, a year filled with major incentives. Because the second half of 2010 had none of the government subsidies, it became a litmus test to whether the market was ready to walk on its own. While wobbly, we are pleased that it did make progress. Were it not for the continued challenges impacting the national economy, we believe the second half would have had much more traction.
Positively Impacting Today’s Market
During 2010, the impact of mortgage rates falling to historic lows continued to drive refinance activity above typical levels. As of December 2010, we are seeing interest rates in the 4.5% range on a 30-year conventional loan, up from 4.2%. These generationally low rates provided critical traction to the housing market.
We view the ‘proof’ of traction in the pended sales numbers. In July, as government incentives came to a close, pended sales activity was tracking at 3.8 million total sales for the year — the lowest pended sales numbers since 2000. The August numbers saw pended sales activity tracking at approximately 4.6 million total sales, an increase post-tax incentive – clearly positive news. HomeServices forecasts that the number of total sales for 2010 will be remain slightly under five million, but dramatically better than where things looked to be in July.
It is this post-incentive growth that demonstrates the beginning of a “normalized” flow from which we can build in 2011.
Distressed Properties
High affordability, in no small part, fueled by the approximately four million residences at some stage of the foreclosure process, has been a key driver in 2010, and might be even more of a factor in 2011.
Home foreclosure opportunities are not coming into the market at the same rate they were earlier in 2010. This has impacted sales, as numerous highly desirable homes with meaningful discounts have yet to reach the market.
We must deal with distressed properties as part of our inventory in order to sell them, even if at highly discounted prices. We encourage banks to work with homeowners on a settlement package because foreclosures in the pipeline must be resolved before we see appreciation in prices.
2011: A Period of Stabilization
Current trends show that the return to a more active sales environment will be gradual and that adjustments must be made before any real growth can be experienced. A recent survey noted that one in five consumers believe the recovery will take place in 2015. We are slightly more optimistic, but balanced. We believe that the existing home sales market will remain at or near the five million unit level – WITHOUT the artificial stimulation of government subsidies – equating to stability throughout 2011.
We also expect interest rates to stay in the 4%’s to mid 5%’s. Affordability will continue at all-time highs, but we need to sell off the remaining distressed inventory before we see any real growth in total sales. We expect slow incremental growth, but not until 2012.
Experts predict that in addition to foreclosures, unemployment remaining in the 9.5% range will significantly impact on our industry. People want to own a home, many have the means — most do not have the confidence. That’s our challenge.