Update on Market Challenges
description
Transcript of Update on Market Challenges
Virginia Housing Development Authority
Update on Market Challenges
Charlottesville Area Association of RealtorsAugust 6, 2009
2
vhda.com | 800-227-VHDA
Four inter-related factorscontinue to hold back recovery in the Charlottesville area market:
1. Home prices
2. Foreclosures
3. Mortgage credit
4. Consumer confidence
3
vhda.com | 800-227-VHDA
Home Prices
4
vhda.com | 800-227-VHDA
Area home sales have fallen to a decade low, but may be near bottom
Source: VAR
Existing Home SalesCharlottesville Area
300
600
900
1,200
1,500
624
622
1,173
- 47%Four-Quarter
Rolling Average
5
vhda.com | 800-227-VHDA
Charlottesville and other markets are trailing NoVA by 12 months
Index based on four-quarter rolling average
Source: VAR
Existing Home Sales Index
25
100
175
03-1
03-2
03-3
03-4
04-1
04-2
04-3
04-4
05-1
05-2
05-3
05-4
06-1
06-2
06-3
06-4
07-1
07-2
07-3
07-4
08-1
08-2
08-3
08-4
09-1
09-2
Ind
ex
(1
st
Qtr
20
03
= 1
00
)
Northern Tier Greater Hampton Rds Greater Richmond
Charlottesville-Central Valley Roanoke-Blacksburg-Lynchburg
Northern Tier Peak 2nd Qtr 2005
Other Markets Peak 2nd Qtr 2006
12 mos.
36 mos.Northern Tier Peak to Trough
36 mos. ?Trough
6
vhda.com | 800-227-VHDA
Price changes generally lag behind changes in sales volume
Source: MRIS
Example: Prince William Market Area
$0
$100,000
$200,000
$300,000
$400,000
$500,000
Dec-9
8
Jun-
99
Dec-9
9
Jun-
00
Dec-0
0
Jun-
01
Dec-0
1
Jun-
02
Dec-0
2
Jun-
03
Dec-0
3
Jun-
04
Dec-0
4
Jun-
05
Dec-0
5
Jun-
06
Dec-0
6
Jun-
07
Dec-0
7
Jun-
08
Dec-0
8
Jun-
09
Me
dia
n E
xis
tin
g H
om
e P
ric
e
0
300
600
900
1,200
1,500
Ex
istin
g H
om
e S
ale
s(12-m
on
th ro
lling
average)
25 months
Home Sales
Home Prices
14 months
7
vhda.com | 800-227-VHDA
Unsold inventory must first decline in order to put a floor under prices
Example: NVAR Market Area(Arlington-Alexandria-Falls Church-Fairfax)
-30%
-15%
0%
15%
30%
45%
Dec-98
Jun-99
Dec-99
Jun-00
Dec-00
Jun-01
Dec-01
Jun-02
Dec-02
Jun-03
Dec-03
Jun-04
Dec-04
Jun-05
Dec-05
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
-10
-5
0
5
10
15Mos. Unsold
Inventory
Annual Changein Median Price
Source: MRIS
8
vhda.com | 800-227-VHDA
Needed inventory reductionsare occurring in different ways
Source: MRIS
Prince William AreaRising sales and falling listings
have played equal parts in reducing the unsold inventory
250
500
750
1,000
1,250
1,500
1,750
2,000
Jun-99
Jun-00
Jun-01
Jun-02
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
New Listings
Existing Home Sales
Fairfax, Arlington & Alexandria Sales volume remains weak,
with inventory reduction mostly due to steeply falling listings
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Jun-99
Jun-00
Jun-01
Jun-02
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
New Listings
Existing Home Sales
9
vhda.com | 800-227-VHDA
Affordability has been a main factor in how the inventory corrects
• In Prince William, the sharp rebound in sales is due to the return of affordability to historic norms.
• However, in Alexandria, Arlington and Fairfax, affordability is still hampering sales to first-time buyers.
Source: MRIS and Census Bureau
Ratio of Median Home Price toMedian Household Income
0.0 1.0 2.0 3.0 4.0 5.0 6.0
Pr. William
Spotsylvania
Stafford
Loudoun
Fairfax
Arlington
Alexandria
Pre-Boom:April 2000
Peak of Boom:May 2006
Post Boom:June 2009
Loudoun
Stafford
Spotsylvania
Historic affordability threshold
10
vhda.com | 800-227-VHDA
Downstate, prices remain above historic norms in many markets
In particular, the Charlottesville, Hampton Roads and Richmond markets remain overpriced relative to historic levels of affordability.
Source: VAR & Census Bureau
Ratio of Median Home Price toMedian Household Income
0.0 1.0 2.0 3.0 4.0 5.0 6.0
Danville
Lynchburg
Roanoke
Richmond
Hampton Rds
Charlottesville
Pre-Boom: April 2000
Peak of Boom:June 2007
Post Boom: 2nd Quarter2009
Charlottesville
Historic affordability threshold
11
vhda.com | 800-227-VHDA
Charlottesville price adjustments lag adjacent Northern VA markets
Source: CAAR, VAR and MRIS
Median Existing Home Price by MLS Area
$100,000
$200,000
$300,000
$400,000
99-4
00-2
00-4
01-2
01-4
02-2
02-4
03-2
03-4
04-2
04-4
05-2
05-4
06-2
06-4
07-2
07-4
08-2
08-4
09-2
Charlottesville
Prince William
Greater Piedmont
Fredericksburg
12
vhda.com | 800-227-VHDA
Charlottesville will more likely follow the NVAR market than Pr. William• The Charlottesville area’s 13-month inventory of
unsold homes remains very high.
• In order for sales to increase significantly as they have in Prince William, prices must fall further to expand affordability.
• However, the area has little inventory of distressed bank-owned homes to drive down prices.
• Therefore, listings will likely continue to contract and prices fall at a moderate rate until a more normal supply/demand balance is achieved.
13
vhda.com | 800-227-VHDA
Foreclosures
14
vhda.com | 800-227-VHDA
Loan defaults continue to rise,and are at an historic level
Share of Virginia Loans Seriously Delinquent(Loans 90+ Days Delinquent including Loans in Foreclosure Processing)
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
1980
-1
1981
-1
1982
-1
1983
-1
1984
-1
1985
-1
1986
-1
1987
-1
1988
-1
1989
-1
1990
-1
1991
-1
1992
-1
1993
-1
1994
-1
1995
-1
1996
-1
1997
-1
1998
-1
1999
-1
2000
-1
2001
-1
2002
-1
2003
-1
2004
-1
2005
-1
2006
-1
2007
-1
2008
-1
2009
-1
Calendar Year Quarter
Source: Mortgage Bankers Association (MBA)
15
vhda.com | 800-227-VHDA
Problem loans, falling prices and unemployment will keep defaults high
• The foreclosure crisis began with unprecedented defaults on weakly underwritten sub-prime and “alt-A” low documentation loans.
• Declining markets and rising inventories of foreclosed homes continue to depress home values, and those price declines are putting a very large share of mortgages “under water.”
• Now, unemployment is also driving increasing numbers of homeowners into default, especially those who are underwater and cannot sell.
16
vhda.com | 800-227-VHDA
At the start of 2008, foreclosureswere heavily concentrated in NoVA
Source: RealtyTrac
Foreclosure ActivityJanuary through April 2008
Number of homes lenders sold
at auction or took ownership of
Less than 25
25-100
101-200
201-400
Greater than 400
CAAR
17
vhda.com | 800-227-VHDA
In 2009, foreclosures are impactinga widening number of local markets
Source: RealtyTrac
Foreclosure ActivityJanuary through April 2009
Number of homes lenders sold
at auction or took ownership of
Less than 25
25-100
101-200
201-400
Greater than 400
CAAR
18
vhda.com | 800-227-VHDA
So far, the Charlottesville area has experienced a low foreclosure rate
Source: RealtyTrac and Census Bureau
0.0% 0.5% 1.0% 1.5% 2.0% 2.5%
Kingsport-Bristol MSA (VA pt.)
Lynchburg MSA
Charlottesville MSA
Blacksburg-Christiansburg-Radford MSA
Harrisonburg MSA
Roanoke MSA
Danville MSA
Richmond MSA
VA Beach-Norfolk-Newport News MSA (VA pt.)
Winchester MSA (VA pt.)
Washington-Arlington-Alexandria MSA (VA pt.)
Share of Homes with a Mortgage
Bank-owned Homes
Trustee Sales
Charlottesville has relatively few homes going to trustee sale, and little
build-up of foreclosed inventoryCharlottesville MSA
19
vhda.com | 800-227-VHDA
Unemployment has risen sharply, but is lower than in other markets
Source: Virginia Employment Commission
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%
Washington, DC (VA pt)
Charlottesville
Harrisonburg
Hampton Roads (VA pt)
Roanoke
Lynchburg
Richmond
Winchester (VA pt)
Kingsport-Bristol (VA pt)
Blacksburg
Danville
Jun 2009 Jun 2008
Unemployment Rates for Virginia's Metropolitan Areas
Charlottesville
20
vhda.com | 800-227-VHDA
The Charlottesville area also has a low share of sub-prime mortgages
Source: 1st American CoreLogic and Census Bureau
Sub-prime Share of Mortgage Loans
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%
Blacksburg-Christiansburg-Radford MSA
Harrisonburg MSA
Charlottesville MSA
Washington-Arlington-Alexandria MSA (VA pt.)
Kingsport-Bristol MSA (VA pt.)
Lynchburg MSA
Danville MSA
Roanoke MSA
Richmond MSA
Winchester MSA (VA pt.)
VA Beach-Norfolk-Newport News MSA (VA pt.)
Charlottesville MSA
21
vhda.com | 800-227-VHDA
The region’s share of alt-A loans is higher and poses future risks
Source: 1st American CoreLogic and Census Bureau
Alt-A Share of Mortgage Loans
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%
Kingsport-Bristol MSA (VA pt.)
Blacksburg-Christiansburg-Radford MSA
Danville MSA
Harrisonburg MSA
Roanoke MSA
Lynchburg MSA
Richmond MSA
Charlottesville MSA
VA Beach-Norfolk-Newport News MSA (VA pt.)
Winchester MSA (VA pt.)
Washington-Arlington-Alexandria MSA (VA pt.)
Charlottesville MSA
22
vhda.com | 800-227-VHDA
The wave of sub-prime resets is over,but other loan types are now at risk
Source: Credit Suisse, IMF Global Financial Stability Report, September 2007
23
vhda.com | 800-227-VHDA
Mortgage Credit
24
vhda.com | 800-227-VHDA
In the short run, the return tosound lending practices is painful
• Everyone agrees that sound lending practices must be restored.
• However, the near-term pain associated with the removal of easy credit is severe.
• Today’s policy dilemma is how to reinvigorate the market without putting in place a new set of distortions that will lead to future market problems.
25
vhda.com | 800-227-VHDA
The mortgage market remainshighly reliant on federal intervention
• The private mortgage-backed securities market remains dysfunctional, with access to affordable capital dominated by governmental entities (the GSE’s and Ginnie Mae).
• Non-conforming / non-government loans—especially jumbo mortgages—still pay premium prices.
• The federal government continues to stimulate the market with historically low rates and tax credits.
• However, the stimulus is off-set by continued tightening of underwriting standards to keep a lid on escalating loan losses by the GSEs and FHA.
26
vhda.com | 800-227-VHDA
First-time buyers still struggleto enter the market
• Affordability remains a barrier due to tightened lending standards.
• Young households are especially impacted by unemployment and under-employment—this is off-setting the stimulus impact of the federal home purchase tax credit.
• In Northern Virginia, unemployment remains low and affordability has increased, but 1st-time buyers are having trouble competing against investors with cash.
27
vhda.com | 800-227-VHDA
VHDA is helping to make the federaltax credit work for first-time buyers
• The federal stimulus home purchase tax credit does not address the critical need of first-time buyers for the up-front cash needed at closing.
• VHDA has created a “Homebuyer Tax Credit Plus” program to address that need.
– VHDA provides a second mortgage on FHA loans for down payment and closing costs at 0% interest with no payments for the first12 months.
– The borrower can either repay the loan from the proceeds of their federal tax credit, or else choose to have the loan amortized over 30-years at the same interest rate as the first mortgage.
28
vhda.com | 800-227-VHDA
As with other stimulus measures, the federal tax credit remains a challenge
• Efforts to “monetize” the credit—such as VHDA’s “Homebuyer Tax Credit Plus” loans—require specialized Truth in Lending.
• This has weakened lenders’ willingness to participate since the tax credit sunsets at the end of November.
• A large share of VHDA lenders are now on board—nonetheless, in July, the $8.7 million in Tax Credit Plus reservations was just over 10% of VHDA’s total monthly loan production.
29
vhda.com | 800-227-VHDA
Consumer Confidence
30
vhda.com | 800-227-VHDA
There has been a dramatic shift in demand from the peak of the boom
Source: VEC and Census Bureau
Projected Change in Adult Population by Age, 2005-2020Charlottesville-Central Valley
209
4,266
7,169
2,573
267
-3,233
-516
4,809
10,217 10,285
8,687
3,726
1,811
4,521
20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85+
Age Group
Young Renters &1st-Time Homebuyers
Middle AgeTrade-up Homebuyers
Empty Nester & YoungerYounger Homeowners
Older Seniorswith Special Needs
31
vhda.com | 800-227-VHDA
The hope for fuller market recovery now lies with first-time homebuyers
• Renewed affordability creates opportunity for first-time buyers to enter the market.
• However, if they are to do so in significant numbers, then they must be given renewed confidence that:– Credit is available under terms and conditions
that provide long-term sustained affordability
– Home purchase still provides tangible benefits
– The risks of homeownership are manageable
32
vhda.com | 800-227-VHDA
VHDA is building homebuyers’ knowledge and confidence
• VHDA requires all of its borrowers to participate in free homeownership education—either through face-to-face classes or on-line courses.
• Homeownership education classes are offered statewide and in a variety of languages.
• This spring, VHDA carried out a statewide marketing campaign to increase awareness of, and participation in, homebuyer education—the result was a 120% increase in class participation.
33
vhda.com | 800-227-VHDA
There is more to do to re-instill the confidence of first-time buyers
• The industry must work together to motivate qualified potential buyers in the face of uncertain employment and declining home prices.
• This requires a common focus on the traditional core values of homeownership:
Security of tenure Stability in housing costs arising from
long-term, fixed rate financing Pride of ownership and control of one’s
living environment
34
vhda.com | 800-227-VHDA
What is the near-termmarket outlook?
35
vhda.com | 800-227-VHDA
Charlottesville’s market will likely continue to correct into 2010
• Home sales are still declining, but may be nearing bottom.
• The price correction is still ongoing, and will likely continue until inventories are reduced—prices must fall further to reflect the significant shift in demand.
• The impact of loan defaults will depend on how much unemployment rises and the magnitude of further price declines.