Forecast presenters: economy continues to struggle but showing signs of recovery

How do consumers feel about the economy?

Awful.

But that’s no different than they felt about the last couple of recessions the U.S. experienced, Dr. Lawrence Yun, chief economist for the National Association of Realtors, told about 475 attendees at the fall Re/Max of Boulder Inc.’s 2010 Real Estate Conference on Nov. 18.

“Consumers are saying that things are rotten in this country,” he says, adding that their confidence about the future is not good, but it’s not as bad as it was in the early and mid-1980s. “If people do not believe in the future, are they going to be confident about making a major decision such as the purchase of a home?”

Yun pointed out other issues holding back from the “Recovery to Normalcy,” or a balanced market, such as businesses keeping their purse strings tight even though their profits are improving.

Federal Housing Administration loans are performing well, but Yun says the “residual impact” of overly enthusiastic lending – foreclosures – will continue through 2012. “All bad loans are made in good times,” he says.

Freddie Mac and Fannie Mae loans made since 2009 are doing well – better than pre-bubble times and perhaps too well – because they are being made only to “super high-quality” individuals, he says. People with reasonably good credit and looking to stay within their budget are being turned away, and that’s stifling the market.

“That’s what we are working on,” he says, noting the NAR is in discussions with the FHA, Fannie Mae, Freddie Mac and the Federal Reserve to lift some of the restrictions on lending.

To reach “normal,” Yun says, the U.S. needs robust job creation. Adding only 100,000 jobs per month is only treading water, and to add more, businesses need to start spending again.

Yun noted that locally, Fort Collins is doing better at creating more jobs compared with 10 years ago, but Boulder is about the same.

Now that the tax credit for first-time and move-up home buyers is over and the winter months are here, the nation will get a better idea of whether the real estate market is returning to normal, he says. That means generally low sales activity during the winter but the spring could bring a normal buying season.

Builders who want to stay in the industry are finding niche and wanting to get back to building – something they weren’t doing because of competition with foreclosures – but they can’t get back to work because they are unable to get government loans, Yun says.

Yum warns that inventory is low and if not enough homes are on the market when people are ready to buy, that means prices will start rising again – which is good for property owners but not buyers. “Under normal lending criteria, people will be priced out,” he says.

And, true to form, Yun stressed that even in the new “normal” economy now developing, home ownership is still the key to financial stability.

“The long-term path to self-reliance may be helped from long-term housing wealth gains,” he says. “That’s the old fashioned way and I think we’ll be returning to the old-fashioned way of building wealth.”

He predicted moderate expansion of the Gross Domestic Product in the next year, mortgage rates rising to 5 percent in 2011 and 5.9 percent in 2012 and no meaningful change to home values.

Local real estate forecast 

D.B. Wilson, president of the Boulder Area Realtor Association and manager of Re/Max of Boulder, Inc., describes the last few months following the homebuyer tax credits as a “hangover.”

Now that the “hangover” has passed, it’s time to look for signs of recovery in the local real estate market.

Here are some of the highlights from Wilson’s presentation:

• Home values have returned, for the most part, with a nearly 8 percent increase in the median and average sales prices of Boulder County’s single-family homes in the first nine months of 2010.

• The average sales price of attached dwellings dropped less than 2 percent.

• Expect housing inventories to continue in a fairly stable range and home prices to drop little, if at all.

• Boulder County saw a 7.7 percent increase in the number of single-family homes that sold in the first nine months of 2010 compared with the same period last year.

• Sales of attached dwellings dropped nearly 7 percent through September 2010 compared with 2009.

• Boulder County has about a 10.5 percent absorption rate of new condos and plenty of supply.

• Foreclosures for the area were down 18 percent through September but they increased slightly in October.

• The good news for sellers is that values have held study, in part because of limited inventory, but that’s not so good for buyers because they don’t have much from which to choose.

• At the end of the third quarter of 2010, Boulder County had 1,988 single-family listings, compared with 1,969 in 2009, with 2,054 sales compared with 1,907 in 2009 (a 7.7 percent increase);

• Indicating the importance of pricing a home right, 33 percent of new single-family listings sold in the first nine months of 2010 compared with 50 percent selling the previous year.

• The number of active attached-dwelling listings was down from 725 through September 2009 to 704 in the first nine months of 2010; sales were down 7 percent.

Wilson also advises that with how low interest rates are now, people who are considering buying need to think about what will happen to their buying power if the interest rate goes up.

“You don’t live with your price … but you have to live with your payment,” he says.