April 17th, 2007 8:20 PM by Ron Mastrodonato
Tighter lending standards good for housing, but dampen sales
WASHINGTON – April 12, 2007 – Tighter lending criteria and fallout from the subprime loan debacle will lead to a healthier housing market with greater assurance that owners can handle mortgage adjustments, but higher loan standards will slow the housing recovery, according to the latest forecast by the National Association of Realtors® (NAR). This month’s forecast marks the first time NAR has predicted a year-over-year decline in national housing prices.
David Lereah, NAR’s chief economist, says the changes are necessary for the long-term health of the housing market. “We want to people to be able to stay in their homes with mortgage terms they understand and can handle,” he says. “Simply stated, a loan with the lowest monthly payment probably isn’t in your best interests – borrowers need to understand worst-case scenarios. If you’re in a mortgage you aren’t comfortable with, now is an excellent time to refinance, if you can, with historically low rates on safer conventional loans.”
Last week, Freddie Mac reported the 30-year fixed-rate mortgage was 6.17 percent. The 30-year fixed rate should rise slowly to 6.6 percent by the end of this year, so borrowers who need to refinance should act soon.
“Tighter lending standards will dampen home sales a bit, but by less than a couple of percentage points from initial projections. We still forecast 2007 to be the fourth highest year on record for existing-home sales, and housing remains a great long-term investment,” Lereah says.
Existing-home sales are likely to total 6.34 million in 2007 and 6.52 million next year, in contrast with 6.48 million in 2006. New-home sales are seen at 904,000 this year and 935,000 in 2008, below the 1.05 million last year. Housing starts are estimated at 1.47 million in 2007 and 1.55 million next year, down from 1.80 million units in 2006.
“As home sales moderate, overall home prices will be essentially flat this year,” Lereah says. “The good news is that inventories remain well below the levels experienced during the last housing downturn in the early 1990s, and supplies are close to balance in many areas.”
The national median existing-home price will probably slip 0.7 percent to $220,300 in 2007, following a 1.0 percent rise last year. The median new-home price is projected to increase 0.4 percent to $246,200 this year, after gaining 1.8 percent in 2006. Modest growth is expected next year, with existing-home prices increasing 1.6 percent and new-home prices rising 2.0 percent.
“When you look at housing activity in 2007, especially during the first half of this year, the percentage change in median home price is being distorted as the composition of sales shifts geographically from high-cost markets to moderately priced areas, in contrast with the sales distribution a year earlier,” Lereah says. “Within given markets, most areas can expect minor price gains.”
The unemployment rate should average 4.6 percent in 2007, the same as last year. Inflation, as measured by the Consumer Price Index, is likely to decline to 2.1 percent this year, compared with 3.2 percent in 2006, while growth in the U.S. gross domestic product is forecast at 2.3 percent in 2007, down from 3.3 percent last year. Inflation-adjusted disposable personal income will probably rise 3.1 percent this year, up from a gain of 2.6 percent in 2006.
© 2007 FLORIDA ASSOCIATION OF REALTORS®
Plea for U.S. disaster fund rejectedWASHINGTON – April 12, 2007 – Despite pleas for help from Gov. Charlie Crist, the Bush administration on Wednesday bluntly opposed creation of a national catastrophe insurance fund to rein in homeowner premiums, saying federal intrusion would disrupt the private market and burden taxpayers.
State or federal attempts to limit consumer costs are “well intended but have the side effect of undermining the private market,” Edward Lazear, chairman of the president’s Council of Economic Advisers, told the Senate Banking Committee.
The administration’s resistance delivered a significant setback to prospects for a national fund, just when Florida backers were gaining momentum in Congress. Undeterred, they plan to continue forming legislation over the next few weeks.
“We’re here to legislate,” said Sen. Mel Martinez, R-Fla. “If we can get it through here, I’ll worry about the White House next.”
Testifying before the Banking Committee, Crist lashed out at the insurance industry on Wednesday – citing estimated profits of $60 billion last year – while urging support for a national fund to spread risk and make premiums affordable in storm-prone areas.
“I’m from Florida, and they’ve been going after our people,” the governor said after the Senate hearing, “I’m for people making a profit, but I am not for profiteering on the backs of our citizens.”
Crist and most members of Congress from Florida want the federal government to provide a financial backstop to limit liabilities and keep premiums from pricing residents out of their homes.
House members from Florida are devising legislation to create a national catastrophe fund to provide that backstop. The Financial Services committee plans field hearings this spring across the country starting in South Florida, although dates have not been set.
Sens. Martinez and Bill Nelson, D-Fla., have proposed creation of a bipartisan commission to make recommendations and build momentum for a national plan.
Crist, flanked by the Florida senators, received strong support from Banking Committee Chairman Christopher Dodd, D-Conn., who proposed tax deductions for homeowners in high-risk areas while Congress considers long-term solutions to rising premiums.
“This is a national problem that demands national attention,” Dodd said.
But many Republicans in Congress are wary of government interference. And industry leaders remain strongly opposed to federal or state efforts to evade actuarial estimates that set rates based on risk.
Florida’s recent legislation to regulate the industry amounts to a “cost-shifting mechanism financed by debt,” said Franklin Nutter, president of the Reinsurance Association of America.
Lazear, the president’s economic adviser, asserted that the private market has worked effectively and that “a federal backstop would mean that all taxpayers nationwide would subsidize insurance rates for the benefit of a relatively small group of people in high-risk areas.”
“Individuals would be encouraged to take on risks that are inappropriate, specifically putting themselves in harm’s way because they do not bear the full expected costs of damages incurred,” he told the committee.
Crist and the Florida senators said the federal government already backs up the insurance system in an inefficient and unplanned way by doling out billions of dollars of aid after massive storms.
The governor brushed off the administration’s objections, saying Bush last year had indicated interest in a national catastrophe fund. According to Crist, “His comment was: ‘maybe it’s time we did this.’“
Copyright © 2007 South Florida Sun-Sentinel, William E. Gibson. Distributed by McClatchy-Tribune News Service.
Central Florida targets European buyers
ORLANDO, Fla. – April 12, 2007 – Central Florida real estate professionals are leading the charge to attract Europeans to the area as both vacation and full-time homeowners.
The British infatuation with Central Florida is obvious – more than 8,000 people from the United Kingdom own homes in the area. But the rest of Europe – including France, Holland, Sweden, Norway, Finland, Germany and Russia – is an untapped market that practitioners are only beginning to exploit.
George Wanberg, a RE/MAX associate, was recently part of a two-person team that participated in the Second Home International exposition in Utrecht, Holland. The expo attracted more than 10,000 potential homebuyers throughout Northern Europe.
Wanberg said he returned from the Holland show with 39 solid prospects. The area is attractive to potential buyers because Central Florida is viewed as a bargain, compared to what Northern Europeans are used to paying for real estate and related expenses.
Source: Orlando Sentinel, Ramsey Campbell (04/10/07)
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