Thursday, October 27, 2011

Housing Industry Making Comeback

By Joy Campbell, Messenger-Inquirer, Owensboro, Ky.

Owensboro is not Las Vegas. And it’s not Phoenix or Miami.
But when it comes to the housing market, local residents sometimes forget that. When they often get national stories instantly online about the national housing market it fuels uncertainty, according to local Realtors and homebuilders.

“Housing is local in nature. It’s locally driven by income growth and job growth,” said Tommy Thompson, whose company Thompson Homes has been building homes in Owensboro since 1947. “We are nowhere near where the national housing market is. In 2010, Owensboro had more job growth than any metro area in Kentucky.”

The greater Owensboro area has taken its lumps since the recession, but nothing like the major hot spots in the U.S. where markets were “overbuilt” and home prices spiked significantly creating a long way to fall.

“We didn’t do that here,” Thompson said. “Our prices didn’t get out of line, so we didn’t have as far to fall.”

The National Bureau of Economic Research — the private group charged with dating the start and end of economic downturns — has marked the most recent U.S. recession as December 2007 to June 2009. But the housing downturn started in 2006.

The home builders and Realtors groups use the single-family home units as one benchmark.

Numbers from the Owensboro Metropolitan Planning Commission show that 367 single-family homes were started in Owensboro and Daviess County in 2006. That number dipped to 356 in 2007. But in 2008, only 254 start-ups were recorded, and that number bumped up slightly to 282 in 2009. And 2010 finished with 292 single-family homes started

And through three quarters of this year, 177 homes got under way.

“If the fourth quarter of 2011 comes through, it will be very similar to 2008,” said Jim DeMaio, president of the Greater Owensboro Board of Realtors. “It’s making its turn.”

The fourth quarter traditionally is strong with a lot of families relocating.

“They look in November, buy in December and move in January,” DeMaio said.

At Thompson Homes, business is up 40 percent over last year, said Nick Thompson, vice president of operations.

Nearly historically low mortgage rates — two weeks ago at 4 percent — coupled–ith anxious sellers is creating a buyer’s market, he said.

Daviess County’s jobless rate was 9 percent for both July and August — about the same as the nation’s 9.1 percent. DeMaio also points to some Multiple Listings Service numbers to explain Owensboro’s market. In 2006, the community had 1,266 listings, and the average sales price was $115,788. For 2008, there were 1,105 listings and the average sales price was $120,319.

In 2009, MLS showed 1,012 listings and an average sale price of $117,684. The number of listings dropped to 981 in 2010, and the average sale price was $120,001.

“Also, in the nine years I’ve been in this, the average days on the market as been in the 120 to 130 range,” DeMaio said. “That is testament to a steady market.”

No bubble here

“The big difference here and nationally is that we didn’t have the big bubble,” said Richard Stallings, executive director of the Home Builders Association of Owensboro. “Across the country, we all had a large amount of new construction, and our studies showed those were not sustainable.”

The National Bureau of Economic Research found that the national housing downturn actually started in 2006. That’s when housing prices nationally started falling from peak levels that were reached earlier in the decade.

Those falling home prices nationally caused a ripple effect through the national economy. They took a toll on home building and home buying and caused a sharp rise in mortgage foreclosures. Leading national banks lost hundreds of billions of dollars leading to a tightening of credit.

“We’ve taken our bumps since ’06,” DeMaio said. “It was easy back then. It was a market-driven market. Now, it’s an agent-driven market. We have to get out there and sell.”

Educating prospective home buyers is a big part of that.

“When I run into someone out in the community, the first thing they want to talk about is the market,” DeMaio said. “They tilt their heads and get this look like they’re so sorry. So we have to show them that it’s just not gloom and doom. As association president, I want to get as many Realtors as possible to preach the good news.”

DeMaio and the Thompsons point to the community’s economic growth and major development projects under way. That activity includes the 500-plus jobs U.S. Bank Home Mortgage is adding; downtown development construction; the new Owensboro Medical Health System construction and growth in health care industry jobs; and more infrastructure work on new U.S. 60 interchanges.

“You’d be hard-pressed to find cities of any size doing what we’re doing here,” DeMaio said.

Owensboro and the nation experienced a record year for housing sales in 2006. The difference in the local and national markets is that Owensboro did not see a huge appreciation in home values that occurred in major markets.

“When the bubble pops, there is great depreciation, and usually prices don’t level back right away,” DeMaio said. “But here, we’ve seen 1 to 2 percent appreciation annually, according to the PVA, and in some pockets it’s higher.”

Nick Thompson said the community has a “consumer psyche crisis” fueled by what’s going on in pockets of the U.S.

Even last week, news from the major markets was up and down.

Foreclosures nationally were up slightly from the second quarter to the third. And forecasters quoted on blogs and in online stories were pointing to falling incomes and tighter credit restrictions as factors that are keeping people out of the home buying market.

On the postive side, the National Association of Home Builders/Wells Fargo Housing market Index for October showed that builder confidence in the market for new single-family homes rose four points to 18. That was the largest one-month gain in the index since the home buyer tax credit program boosted the market in April of last year, according to the NAHB.

The index comes from NAHB’s monthly survey that has been conducted for 20-plus years. It gauges builder perceptions of single-market sales and expectations for the next six months as either good, fair or poor. Other questions also are in the survey. The scores then, are used to figure a seasonably adjusted index where more than 50 shows that more builders view conditions as good than poor.

The other index measuring sales expectations in the next six months rose seven points to 24; the one gauging traffic of prospective buyers came up three points to 14.

But national policy impact is real

Owensboro’s housing professionals point to exceptions here — the housing market didn’t have an oversupply, the community didn’t have an excessive amount of foreclosures; community banks didn’t get into the sub-prime mortgage business.

But those factors have not protected buyers and sellers, Realtors and home builders, from the national policy changes that were made to correct the national crisis.

And, the economy generally tanked.

The Daviess County Clerk’s office listed 717 tax bills worth $372,614 offered to investors in this year’s tax sale. After a year, the investors have the right to begin foreclosure proceedings. This year’s total is more than double the 322 bills that were available at last year’s tax sale.

“All of this has had an effect on the American dream of home ownership,” Stallings said. “And a lot of it is regulatory. The entire industry is burdened with it, including the banking and appraisals industries. It requires more due diligence. The challenge for the buyer, is that it’s more difficult to qualify and the process is lengthy.”

DeMaio, who is a Realtor with the Greater Owensboro Realty Company, agreed that the downward economic trend and banking/government regulations are making it more challenging for buyers to gain financing.

“In 2006, with a 540 credit score you could still get financing,” DeMaio said. “It’s more in the 620-640 range now. With 100 points difference on a credit score, a lot of potential buyers drop out.”

Even so, the money and the products are available.

“It’s a good time to build with the low mortgage rates,” said Rick Bivins of JMJ Construction. “Some people are just still worried about the national situation.”

“There is a little more scrutiny and paperwork from the lenders now,” Nick Thompson said.

“Candidly, people bought houses they shouldn’t have and there were some misrepresentations in some cases, and people got in over their heads,” Tommy Thompson said. “Now we have tightened standards. The disapproved or rejection rates are 2 to 3 percent higher now, and we’re trying to get back up to a reasonable level.”

Appraisal standards have changed and are stricter, but the local market appears healthy, the Thompsons said.

“Lenders use companies from a menu of appraisers now, and sometimes when an out-of-town appraiser that has not studied the market well is used, there is a disconnect,” Tommy Thompson said.

One big change is that banks can no longer talk directly with to the appraiser; they rotate companies from a list, Nick Thompson said.

Purpose of housing still shelter

Nationally and even locally to a smaller degree, some people bought houses with no down payment or a token investment such as $10.

“People walked away when they lost their jobs. They didn’t have that much invested in the house,” Tommy Thompson said. “People need to have some commitment to the house.”

The primary purpose of the house continues to be shelter, Tommy Thompson said.

“A lot of people nationally used houses as ATM machines. They were not buying houses to live in, but to sell. That’s where ‘flipping’ came into play, and we had an unnatural elevation of prices. We’re getting back down to a reasonable level now. We need to recognize that the primary purpose continues to be shelter.”

Homes are still a good, long-term investment, the professionals said. Owners build equity in the home and receive tax deductions for their interest and property taxes.

Stallings said the national data points to some pent-up demand for housing.

“The data shows that since the recession,1.2 million households have not been formed,” he said.”Young adults are living at home or with their college roommates.

Put another way, in 2006, home builders were adding 2 million houses annually, which was unsustainable. The country needs 1.4 to 1.5 million homes to replace those that are demolished or lost to fires and other means and to accommodate growth. The industry now is building 600,000 houses.

As the economy strengthens, consumer confidence will come back nationally, and more people will begin buying homes and other products. Home prices will climb then.

“The trend is that single-family starts are up,” Tommy Thompson said. “We’re not going to be back at 367, but we’re going in the right direction — better than last year — and we’re working our way up.”

The lending environment is positive, Nick Thompson said.

“If an individual has a job and a reasonably good credit rating and enough money for a down payment, that person can buy a house,” Nick Thompson said.

Joy Campbell, 691-7299,