The Seattle King County Association of Realtors brought in Dr. Lawrence Yun, Chief Economist for the National Association of Realtors for their annual Broker Summit last Friday. He prefaced his presentation with the long run postulate, “everything is going to be just fine in the long run “(OU Delt house, ’71) He reiterated how we got where we are (credit bubble = housing bubble), presented an overview of the housing stimulus package (let’s hope it works as it is a one shot deal) and gave us his analysis of the short term outlook for our region.
The data he used for his short term outlook surprised me because he made a direct comparison of Seattle and Orange County, California. He noted that historically as California goes, so goes the West Coast. He cited that California has a net loss of population (citizens and legal residents) while our region continues to grow (with many new residents from California). He also cited that California was losing jobs and the Seattle area was relatively stable.
He displayed a graph that showed that the rise in home values in Orange County was far steeper than our region and hence, the downward correction was far more drastic. He went on to say that the sale of existing homes in Orange County is up 100% from the same period one year ago and that the trend is likely to continue.
He then cited three things in our region that added together spell a recovery in home sales. Median income in our region has been relatively steady, median home prices have fallen and that combination coupled with the affordability (a calculation using median income, median home prices and current interest rates) should spell a housing recovery. In fact, the affordability index in the entire country has never been this favorable according to Dr. Yun.
In spite of this the sale of existing homes fell dramatically from January to February of this year. It is obvious that current demand is driven by buyers looking for bargains. Lower mortgage rates in December drove new sales and closings in January. January’s very modest rise in rates caused buyers to step back, waiting for the return of rates in the 4’s.
So there is the pickle. Unless rates fall back to December levels or buyers figure out that rates today are as low as they will be for a long time, buyers will stay on the sidelines.