VAR editor, Andrew Kantor recently wrote a great Op/Ed on Virginia’s housing market which ran in the Virginian-Pilot out of Hampton Roads, VA. Check it out!
A coming change to the housing market is an opportunity to kick the economy back into high gear – but, if we don’t all work together, it could stagnate the housing market and maybe the rest of the economy as well.
Thousands of people who lost their homes to foreclosure are reaching the point where their credit has cleared enough for them to re-enter the market.
Unfortunately, just as these “boomerang buyers” are beginning to get on their financial feet, there aren’t enough homes for them to buy.
That’s fixable, but it still puts us at a crossroads of the economic recovery.
When the housing bubble burst, millions of people lost their homes because they couldn’t afford their mortgage payments. They were foreclosed on or bought out on the cheap via short sales.
Their homes ended up in the hands of lenders or with investors who turned them into rental units. As a result, prices plummeted and U.S. homeownership is at its lowest rate in 50 years. About 4.5 percent of former owners now rent.
Fueled by post-bubble prices and historically low mortgage rates, the housing market has been recovering, lifting the rest of the economy with it. If things don’t change, though, that may not last.
The housing crisis has pushed sellers to the sidelines. The sinking sensation of the market crash is still with us, making too many sellers afraid to enter the market. Prices are certainly going up, but too many people expect prices to reach those mid-bubble highs again – forgetting that it was a bubble.
Meanwhile, thousands of bank-owned homes remain off the market, as lenders haven’t gotten around to clearing out their inventory. Investors have turned many private homes into rentals, leaving fewer choices for typical buyers.
The result: There isn’t enough to sell. Inventory is down by more than 40 percent over last year, and the homes that are on the market are selling much more quickly (16 percent more quickly this year than last).
The Federal Housing Administration won’t give someone a mortgage until three years have passed from a foreclosure; traditional lenders wait seven.
In Virginia, foreclosures started to rise significantly around 2006; they peaked in 2011.
That means boomerang buyers began appearing as early as 2009. They’ll really start to show in force in 2014, when they are likely to be a major factor in the housing economy. (The good news is that new regulations make sure that the mistakes that led to the housing bubble are much harder to repeat.)
So the buyers are coming, but will there be anything for them to buy?
To keep the economy prospering, we need a few things to happen. Banks need to release the properties they’ve acquired by foreclosure. Some of them have held onto homes for years, leaving them vacant – and that’s not good for anyone.
Government needs to keep its regulations smart – tight enough to protect consumers but loose enough to allow lending to responsible, credit worthy customers.
And sellers need to realize that home prices aren’t going to skyrocket to 2005 and 2006 levels anytime soon.
Americans still want to own their own homes, and the real estate market has helped power the economy back to a healthier state. But we need to keep that engine running. The fuel is housing – it’s getting homes back into circulation and helping buyers be ready and able to buy them.
We won’t get something for nothing: Buyers can’t expect the incredible bargains of 2009, and sellers can’t expect the prices of 2006. Banks will have to deal with new regulations, but government needs to keep those regulations smart and focused.
Together, though, we can keep the world’s largest and most vibrant economy surging ahead.