Whiff of revival in northeast US home market

Source : Business Times - 23 Apr 2009

But strong recovery some way off despite increased interest as buyers still finding it hard to get mortgages

After one of the worst slumps in memory, the housing market in the Northeast United States is stirring to life with more buyers on the prowl and bigger crowds at home showings. But few are in a rush to buy and many of those willing to spend find it hard to get mortgages, suggesting a strong recovery is still some way off and those hoping for a swift return to the go-go days will be disappointed.

Many home-buyers are like 26-year-old Jessica Doctoroff, who is taking her time as she hunts for her first home in the densely populated neighbourhoods around Somerville, a middle-class Massachusetts city that neighbours Boston.

After years of renting and living with roommates, the insurance manager wants her own home and is ready to buy. She’s viewed about 20 condominium apartments since February and has seen plenty of bargains get even better. One two-bedroom apartment had its price cut by US$25,000 and another was reduced just 10 days on the market.

‘I don’t feel like there is a rush,’ she said after viewing a 1,177 sq ft two-bedroom apartment priced at US$499,000. ‘There’s a lot more people coming out to look at these places, that’s true, but there’s a lot more property on the market.’ Massachusetts was one of the frothiest markets in the boom.

In the first quarter of 2000, the state ranked first in the pace of year-on-year house price rises in the country. And from 1995 to 2004, home sales notched double-digit growth.

But the recession is hammering the region. Home sales fell by 11 per cent year-over-year in February in Massachusetts, 15 per cent in neighbouring Rhode Island, 22 per cent in Maine and 26 per cent in Connecticut, according to the Federal Reserve’s ‘Beige Book’ survey of economic conditions released last week.

Home prices fared even worse. The median price of a home in those four states plus New Hampshire fell 17 per cent or more year-over-year, including a 26 per cent drop in Rhode Island where the unemployment rate has scaled double digits.

Real-estate brokers agree those numbers are dismal but say several factors may turn the tide - from low prices to low interest rates and a new-homebuyer tax credit. Mother Nature also could help as warmer weather and sunshine draw bigger crowds to home showings after an unusually cold winter.

Expectations are high for a spring thaw in sales. ‘It’s definitely getting better,’ said real-estate broker Stephen Bremis of Bremis Realty Inc in Somerville. Attendance at the home showings he organises has nearly doubled since February. He sold two houses in three days last week. He said buyers are responding to a drop in interest rates that has pushed the national average on a 30-year fixed-rate loan to around 4.85 per cent, the lowest on record, along with a tax credit of up to US$8,000 for qualified first-time buyers, part of the federal housing rescue plan passed in February. Some banks are also offering unprecedented incentives, like money for closing costs to unload foreclosed properties.

Brokers point to other positive signs such as a rise in Massachusetts condominium sales and prices in February compared to the previous month, according to the Fed’s Beige Book.

‘It’s likely that we have seen or are very close to seeing the bottom in home sales. But that’s very different from saying there is going to be a meaningful pickup in sales,’ said David Berson, chief economist of mortgage insurer PMI Group. He cites an index of housing affordability calculated by the National Association of Realtors that jumped in January to its highest since tracking began in 1970.

‘If you look at all the recessions for which we have housing data - and that goes back into the 1960s - home sales have bottomed and started to move up always before the official end to the recession,’ he said. ‘Before you can run you have to walk. And home sales bottoming is an important precondition for the housing market overall to recover. And I think that is where we are now.’ But for many, the credit crisis has made getting a mortgage harder than ever as banks demand larger down payments and more liquidity. And condominium sales have been slowed by new rules that make it hard to get conventional loans unless 70 per cent of the apartments in a building are at least under contract to be bought.

‘It used to be really difficult to find some buyers. And now there may be more buyers, but they are having a whole new battery of challenges, mainly financing,’ said Marc Charney, president of Charney Real Estate in Wellesley, Massachusetts. ‘So even if you have somebody who is ready, willing and able to buy, that doesn’t mean much,’ he said. ‘The appraisers are also under such new scrutiny. That’s another big factor.’ In the housing boom of the 1990s, an appraiser valued homes based on sales transactions in the same neighbourhood going back six months. Many lenders tightened that during the recession, narrowing the timeframe for appraisals to three months.

The experiences of brokers in Massachusetts are echoed in other parts of the US Northeast.

‘A lot more people are coming to shows. But they are taking a lot longer to make a commitment,’ said Carol Tangorra of brokers Schweppe Burgdorff in Upper Montclair, New Jersey.