By Dick Thackston
Whether the US Economy is entering or has entered a double dip is a hard call and seems less than clear to most of us. Remember as President Nixon famously said over forty years ago: “Unemployment’s a matter of perspective which mostly depends on whether you’re working or not.”
Happily, New Hampshire and Vermont are among the most economically successful states in the country at this time. New Hampshire gained approximately 12,000 jobs from the peak of unemployment and Vermont has gained 5,700 in the same time frame. To be sure both states still have a net loss since 2008 however both states show that they are making the long crawl back from the bottom. New Hampshire’s economy is outperforming the US economy overall by adding jobs faster which has lead to increasing income and spending and our lower unemployment and is likely to do so in the foreseeable future according to most Economists.
So where’s housing?
Why aren’t prices stable and buyer’s buying at such low interest rates?
House prices have fallen about 20% overall in New Hampshire: more in the poorer areas and on poor quality properties and less in the wealthier areas and better quality properties. The number of homes available for sale in New Hampshirehas ranged from twelve to sixteen months worth of inventory over the last three years and seems to remain in that range.
Why is that?
If homes are selling at some pace why can’t we get ahead and drive the amount of inventory down to a more manageable backlog and generate some appreciation and good news? There are several critical factors: consumer age, nature of inventory, consumer confidence and banking regulation.
Since the year 2000 the populations of New HampshireandVermonthave seen their highest growth rate in the categories ages 55-64 and 65+. This seems to be driven by two major dynamics. The low rate of economic growth means younger families are not as attracted to the region as they might be to other more dynamic regions and the tax climate is very favorable to wealthier households that tend to be older. Older consumers tend to not spend as much in general and tend to not be as mobile in housing. They tend to stay put reducing the velocity of sales in the region.
The inventory of available homes in our region tends to be of poor quality over all – to be sure there are many fine homes in excellent condition available – which generate little or no interest in housing consumers of any demographic. During the housing bubble these homes sold at unreasonable high prices because they might be the only property available to many consumers most of whom might have been better off without the property. Many of these properties have no future and this is the range where we see sales in the region in the < $50,000 range. The prices often reflect lot cost minus the price of removing existing structures. Even at that low price level there is very limited demand and these properties are likely to remain a glut on the market statistically for years not months.
Consumer confidence remains weak. If economic uncertainty is to remain the ruling dynamic for the foreseeable future is it any wonder that household savings is likely to continue increase dynamically? Is it any wonder that large corporations are mimicking households as a rule and holding on to large amounts of cash at a time when lending is not guaranteed to be available to even the most qualified of borrowers?
Banks have positive economic incentives to hold up foreclosures and release them onto the market slowly. The longer banks hold delinquent properties off the market the longer they can put off recognizing losses so they look better to both regulators and investors but more significantly they aren’t forced to compete with themselves and there is an increasing trend among lenders to work out short sales with their delinquent accounts. Most industry analysts in the mortgage banking industry expect a surge in short sales in the next twelve to eighteen months. Shortsales reduce lender losses by so estimates as much as $50,000 per property and is far better from a public relations point of view with the consumer that has is over mortgaged.
So what’s the best plan for the average consumer at this time? For seller’s it’s simple: be realistic about your price; if you’re over mortgaged select a REALTOR with success handling short sales and begin working with your lender early in the process. This is likely to allow you to obtain the best terms from both your lender and the home buying public. For buyer’s it’s more complicated: understand what you really want and can afford; get pre-approved by a lender early in the process – bank owned properties and shortsales won’t normally consider any offer from a buyer that can’t produce a pre-approval from a lender with a contract; and most importantly understand that the really inexpensive properties are mostly trash and will not be financeable – there are no free lunches in housing!