Housing recovery arrives in Virginia

Published July 15, 2012

After five years, we can final­ly say that yes, Virginia, the hous­ing recov­ery is here.

I don’t expect you to believe that, of course. It’s easy to dis­miss some­one from a Realtor asso­ci­a­tion who says, “The hous­ing mar­ket is doing well!” So please take every­thing here with a siz­able chunk of salt. Read on. Read the news. You’ll see there are sim­ply too many pos­i­tives to ignore. We’ve passed bot­tom. We are in a recov­ery.

Being in a recov­ery, of course, does­n’t mean every met­ric is going up. Home prices, for exam­ple, could still go down, and there will always be speed bumps. But con­sid­er the data.

* * * * *

Unemployment is down. Virginia has the ninth-low­est unem­ploy­ment rate in the coun­try. It’s not as low as we’d like, but it’s well below its peak and has been drop­ping steadi­ly. More jobs mean few­er delin­quen­cies, few­er fore­clo­sures and more peo­ple able to buy.

Delinquencies are down. And yes, more peo­ple are able to pay their mort­gages today: Fannie Mae, Freddie Mac and the Mortgage Bankers Association all report delin­quen­cy rates drop­ping since ear­ly 2010.

Interest rates are still crazy low. Since 2010, mort­gage inter­est rates have been at record low lev­els, bring­ing iffy buy­ers into the mar­ket. And even more will enter if rates start to inch up — they won’t want to miss out on the low­est rates in his­to­ry.

Lending is loos­en­ing. The Federal Reserve found this spring that demand for mort­gages is increas­ing. Lenders are respond­ing by — cau­tious­ly — look­ing to offer more loans. Credit-infor­ma­tion ser­vice Experian rec­og­nized this and launched a pro­gram to help lenders iden­ti­fy sol­id “near-prime” clients — in oth­er words, “reg­u­lar folks with nor­mal cred­it.

HARP is work­ing. The Home Affordable Refinance Program has let mil­lions of peo­ple refi­nance at today’s low­er rates. That puts more mon­ey back into the econ­o­my, which means jobs, and jobs means hous­ing.

Rents are ris­ing. At one as a less-expen­sive alter­na­tive to own­ing. But increased demand has pushed rents up, some­times to record lev­els. Result: The cost of own­ing com­pares more favor­ably to rent­ing than at any time in decades.

* * * * *

Short sales are get­ting more effi­cient. Federal inter­ven­tion ear­li­er this year required lenders to act more quick­ly when an own­er request­ed a short sale — sell­ing a home for less than is owed on the mort­gage. The result is that in most of Virginia there are more short sales than fore­clo­sures — and that’s good for every­one.

Inventory is down. Nationwide, list­ings of homes for sale are down more than 20 per­cent from 2011, and they con­tin­ue to drop. Virginia’s statewide inven­to­ry was down more than 37 per­cent in May from a year before. That’s a sign of excess inven­to­ry being absorbed by the mar­ket — exact­ly what we’d expect in a recov­ery.

Buyers are return­ing. Low prices, low rates and ris­ing con­fi­dence mean more peo­ple are out look­ing to buy. Some areas are see­ing mul­ti­ple bids become the norm. Most are see­ing list­ing prices rise as sell­ers gain con­fi­dence. And investors are pour­ing mon­ey into the mar­ket in what The Wall Street Journal called a “gold rush” to buy homes and turn them into rentals.

Forward-look­ing indi­ca­tors are up. Whether you’re view­ing stats from home­builders, the Census Bureau or Virginia Tech, the trend is the same: Permits and con­struc­tion are both ris­ing. So, too, are mort­gage appli­ca­tions — in June they hit their high­est lev­el since 2009. Housing starts have risen more than 36 per­cent from the mar­ket bot­tom, and res­i­den­tial con­struc­tion spend­ing was up more than 18 per­cent in May from a year ago.

* * * * *

The end result? Home sales are up — it’s that sim­ple. And more sales mean more mon­ey into the econ­o­my (think movers, clean­ers, repair work­ers, land­scap­ers, all of whom can get work out of every house sold).

In Virginia, since 2010, home sales every month have been above those of the year before. In Southwest Virginia, sales were up a whop­ping 38.2 per­cent from 2011 to 2012.

Yes, prices have dropped, but that’s because the hous­ing bub­ble inflat­ed them above real­is­tic and ratio­nal lev­els. They’re drop­ping back to his­tor­i­cal norms, as they should. A recov­ered mar­ket will be one with prices at about the lev­el they were before the bub­ble began to inflate.

One wor­ry has been that fore­clo­sures would drag down prop­er­ty val­ues. This did hap­pen to a degree, with some regions far­ing worse than oth­ers. But the fore­clo­sures also helped to bring prices down to his­tor­i­cal norms more quick­ly. And then some­thing good hap­pened: Foreclosure prices began to rise. In 2012, medi­an fore­clo­sure prices are up 5.5 per­cent over the past year due to high demand. That’s a sign of a strong market.

All that said, this is eco­nom­ics. There are no guar­an­tees, and there are plen­ty of things that could derail the recov­ery, no mat­ter how strong it is.

Rising inter­est rates. A grid­locked Congress. The European mess. Plus unem­ploy­ment, nat­ur­al dis­as­ters, gas prices, trans­porta­tion issues — they all impact hous­ing, and they’re all impos­si­ble to pre­dict.

Yet all that said, the hous­ing econ­o­my’s direc­tion is, now, firm­ly for­ward. And it’s gain­ing steam. Bet on it.

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