Keeping Current Matters

National Association of Realtors

Saturday, March 1, 2008

Real Trends Newsletter

The New Year: The Worst Looks to be Behind Us
According to the REAL Trends Housing Market Report released on January 17, closings for the fourth quarter 2007
were down 21 percent from the same quarter in 2006. However, the good news is that closings for each month from
October 2007 through December 2007 were down fairly uniformly from the same months in 2006.
Prices were down in much the same pattern. Prices for closed homes were off about 1.5 percent for the quarter, but
were off fairly uniformly for each month of the fourth quarter.
Hence, while business is down, it did not appear to be declining much throughout the fourth quarter of 2007.
The REAL Trends Housing Market Report was launched in October of 2007. It is a
compilation of closed home sales from brokerage firms representing nearly 40
percent of all broker assisted sales throughout the country. The report covers all
states and MSAs and represents a cross section of price ranges and types of homes.
A new report from REAL Trends, the Pulse, a survey of 750 brokerage CEOs that
we launched in January, indicated that many brokerage firms improved in January
over the prior month. Sixty-four percent of CEOs said they strongly supported or
somewhat supported the statement that their business was measurably better as of
the end of January. Almost 70 percent strongly said that a temporary raising of the
conforming loan limit would have a material positive impact on their business –
which Congress and the President appear ready to sign.
Mortgage rates dipped on interest rate cuts by the Federal Reserve Board as economists
indicated that the risk of recession was near or upon us. Retail sales and credit card
growth were down measurably in December and January, indicating that consumers are
cutting back. While a recession is not an event to be sought, it can lead to an easing of
credit demand and lower rates. Lower rates can stimulate housing demand, even in
the fact of a downturn in employment, as we saw in the modest downturn of 2001.
Lower rates for mortgages and softer prices for homes mean a rise in affordability, all
other factors being equal. All of these trends should support increased buyer activity.
According to many sources, housing price indexes prices are down. The REAL
Trends Housing Market report showed that prices for closed homes were down
1.5 percent from the year before. NAR and OFHEO show soft house price declines.
Zillow’s Zindex and Cyberhomes show 3-5 percent home price declines on a
national basis. Even the S&P/Case-Schiller Index, the most bearish indicator of
house prices, says that there are many markets that remain healthy.
While homebuilders continue to report record soft sales and starts, a drop in the
supply of new homes is not bad for this housing market. Also, there are numerous
reports of investors gathering portfolios of distressed mortgages and real estate.
When large pools of investors are beginning to purchase real estate, it signals that
professional investors smell the bottom of the market.
We do not think most markets will decline much further in terms of transactions.
However, should the predicted recession be more than a mild one or the Fed
becomes more worried about inflation than a growing economy, then 2008 will not
likely be a year where housing turns upward.

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