Following up on Liesel Nowack’s story this morning in the DP, fast on the heels of the Virginia Association of Realtors’ release of home sale data:
Regarding low interest rates’ impact on the boom – did they have an influence? Yes and no. For a (per usual) far more in-depth review, read Samuel Miller’s post entitled “Low Rates Did/Did Not Fuel the Housing Boom.”
Did rates fuel the housing boom? Maybe. Rates impacted the psychology of buyers (and sellers, who usually purchased after they sold) by offering nearly “free money,” from an historical point of view. Low rates allowed builders and speculators to enter the market at a tremendous rate, but low rates are not necessarily the contributing factor to the recent spike in inventory.
More specifically, the mortgage market contributed to the boom. The free market is a fluid, ever-changing, some would say evolving, beast. (from Inman, subscription required:) The study, “The Great turn-of-the-century housing boom,” is here)
“That the increase in home ownership cuts across so many different categorizations suggests that the overall home-ownership rate is not merely reflecting changes in the distribution of the population among the categories. Something fundamental about the home-ownership process has changed,” the study theorized.
What’s changed, the economists say, is mortgages. In the last 10 to 15 years, a slew of new mortgage products aimed at first-time home buyers have been introduced. The secondary mortgage market has grown, allowing many different kinds of mortgages to be sold as securities. At the same time, technological advances have reduced the cost of approving mortgages and given lenders more precise measurements of a borrower’s credit risk. Specialized firms have sprung up to capture different segments of the market, such as origination, servicing and securitization, the authors say.
Year over year, pending sales are down in the CharlAlbemarle region* by 22%. What does that mean? 22% fewer homes are under contract now than at this time last year. Inventory is up, but demand is still strong. Rates are still low. Buyers are buying, but they are buying with more patience and diligence. The housing world is not coming to an end.
Houses are not normal, liquid commodities; they are serious investments that require careful analysis of many, many factors prior to purchasing. The market moved away from this state of due diligence and we seem to be in the midst of a return to normalcy. That is a “good thing.”
OFHEO Housing Price Index for Charlottesville
*The Association of Realtors includes Louisa County in their statistics, despite its omission as part of the Charlottesville MSA.
Graphs courtesy of The Rude Reckoning.
Interest rates for the past 14 years