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The Worst is Over for Home Sales, NAR's Chief Economist Tells Silicon Valley REALTORS®


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Tuesday, October 12, 2010

At the annual membership meeting of the Silicon Valley Association of REALTORS®  held yesterday at the Palo Alto Hills Golf and Country Club,  National Association of REALTORS®  Chief Economist and Senior Vice President of Research Dr. Lawrence Yun told REALTORS® he believes "the worst in (home) sales is clearly over."

"Even in the worst market, the bleeding has stopped," Yun added.

Yun supported his claim with data that shows, particularly in the San Francisco –San Jose area, the bottom has already occurred and prices are beginning to firm up. He stressed all real estate is local, and the Silicon Valley region is fortunate because many people want to live in the region, so demand for housing is high.

California's housing market recovery started even before the home buyer tax credit, according to the national economist. "California's housing market correction was short, sharp and fast," Yun said.

People know California home values are one of the most expensive in the country and, after initial hesitation, they realized buying a $1 million dollar home for $700,000 was a bargain, Yun explained. The tax credits boosted sales even more. It will take time, but the market is slowly recovering. Prices are back in line with historical norms, and the only things holding back a full recovery are the job situation and psychological outlook.

In 2000, there were 1.1 million payroll employees. While there is some improvement with 850,000 payroll employees today, the country is not there yet, Yun said.  His data showed corporate profits rising, but business spending - which normally rises as profits rise - is down, making the economy sluggish.

Yun indicated it's been an unusual downturn, companies know consumers are tapped out, so they are afraid to expand. Businesses see they can still make a profit with fewer employees. There is also much uncertainty about health care legislation, the recently passed financial regulatory bill and potential taxes.

"We need job creation. If business spending increases, the economy would be more robust," Yun said.

Yun also worries about housing starts. If building does not keep in pace with a growing population, Yun predicts a serious housing shortage. He said in the Bay Area alone, 30,000 housing units need to be produced – a far cry from last year's 3,000 units.

Yun's message: Those with strong credit who can buy, should buy, while mortgage interest rates are still at a 50-year low. Things could change very quickly, especially if inflation creeps in.

"I don't expect rates to remain low. They may increase next year," he said. "If you're willing to stay well within a budget and are comfortable with it, at a 4.4 mortgage interest rate you're protected under inflation."

Distressed sales, unfortunately, will remain a fixture in the market for at least two more years, according to Yun.  He said the banks' axiom is "All bad lending occurs in good times." Many of the distressed sales are a result of loans made during the housing boom. He hopes with the foreclosure moratorium banks will understand negotiating short sales would be a better option than foreclosures.

As for Fannie Mae and Freddie Mac, Yun said the GSEs (government-sponsored enterprises) need some reform. He contends they were "guilty of chasing market share and went after profit aggressively, when they should not have done so. When the housing market failed, the hedge fund they created collapsed and the tax payers suffered."

Yun said the federal tax credits did what they were supposed to do. The market must now be allowed to stand on its own. The key test will be this winter.

"If this winter's sales match up with other winter home sales, I would say that would be a very positive sign," Yun said. "Let's give it time."

Visit www.silvar.org to view Lawrence Yun's PowerPoint presentation.

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The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.

The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.

Variations of this article have appeared in local area newspapers.

For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.

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