The birth flower for October is the Rose. The birth stone for October is the Opal.
Housing Affordability: A Possible Good Omen
by Lawrence Yun, NAR Chief Economist
Amid all the media reports on how housing is still “in the tank,” one piece of news seemed to have escaped many of the pundits. Housing affordability could possibly reach an all-time high of near 200 in the second half of this year. That is, a household making the median income would have twice the income necessary to buy a median-priced home in America. To date, NAR’s housing affordability index reached an all-time high of 184 back in early 2009. It was only slightly above 100 during the housing bubble years, meaning that qualifying income barely met the requirements to buy a home even with a 20 percent down payment (if not using teaser-rate, funny/toxic mortgages). Historically over the past 40 years, the average affordability index was 118.
The principal reason for the expected record high housing affordability index reading is the rock bottom mortgage rates of 4.4 percent on a 30-year fixed rate. Add to that modest gains in the average wage rate, which rose 3 percent in 2009 and is up 1.2 percent this year-to-date in spite of the high unemployment rate. Consider now versus then when home prices were at their “bubble” peak in 2006.
Of course, like all things “real estate,” affordability is local as well. There will be considerable local market variations in affordability conditions. Remember that one of the main components of NAR’s affordability index is home prices. Some markets encountered only minimal price declines while others such as Las Vegas experienced a 60 percent nose dive. Still, on a nationwide basis, the affordability conditions have risen to compelling levels.
However, if a sizable number of people view – rightly or wrongly – that home prices will fall further and raise the affordability levels to even higher levels, then homebuying will continue to remain soft. That will lead to a further build up of inventory and thus hold back a true price recovery. The price decline potential was evident in July’s housing data. Existing-home sales plunged 27 percent to 3.83 million seasonally adjusted annualized units – their lowest level since 1995. Even though there was little change in inventory (with 4 million homes available for sale), the actual months’ supply of inventory rose sharply to 12.5. The sales decline reflected the aftermath of taking the stimulus medicine away. For nearly all of June, homebuyers knew they had to close the deal by the end of June to qualify for the tax credit. Therefore – and naturally – people rushed in to close in June and not wait till July. Qualitative REALTOR® member survey data about recent homebuyers suggest that investors, all-cash buyers, and buyers of expensive homes stayed in the market in July, but first-time buyers did not.
Going forward, home prices may fall, although I doubt in any meaningful way. Even if they do decline, there is no guarantee that affordability conditions will improve. Again, the principal reason for our current exceptionally high affordability conditions is lower mortgage rates. If prices were to fall 10 percent but mortgage rates creep up to 5.4 percent, then the affordability conditions could actually worsen.
As for home sales, there are far fewer people in the pipeline to buy a home in the immediate months after the tax credit expiration. Consequently, expect continuing low sales at least through autumn. But sales should slowly come back because of the high expected affordability conditions. Winter months are generally slow ones for home sales. If sales this coming winter matches up with past “normal” winters, then it would be a good sign that the housing market is getting back on track to normal sales levels. If sales this winter remain 20 to 30 percent lower than normal, then we are looking at trouble with high inventory stuck at a double-digit months’ supply. Remember that the months-supply figure is also impacted by the raw count of homes listed for sale. Since inventory generally declines from summer to winter, the months’ supply will steadily fall, hopefully to 8 or 9 months, and close to the level consistent with continuing price stabilization. For example, inventory fell by 600,000 to 800,000 from July to December in each of the past 3 years. If a similar decline occurs this year and home sales slowly bounce back to 4.5 million (annualized sales) then we can have continuing price stabilization.
A compelling argument can be made about the best affordability conditions, but it will be for naught if consumers lack confidence. Confidence in turn will be directly impacted by the general direction of the economy. Unfortunately, the economic recovery is coming to a virtual halt. GDP growth rates in the past three successive quarters were: 5.0%, 3.7%, and 1.6%. The upcoming GDP growth rates could be even lower figures. (If it turns negative for two straight quarters, then another fresh recession is at hand). At such tepid growth rate the unemployment rate could well reach 10 percent. GDP growth in a post-recessionary environment should be 5 percent or better, not only to start growing but to compensate for the recessionary downfall.
The weak economic expansion means that the job market will continue to look bleak and the unemployment rate could top 10 percent. This does not mean the country is necessary losing jobs on net right now. There have in fact been 763,000 private sector job creations from the beginning of the year to August. The soft economic expansion just means that the job creation pace is too slow to accommodate the rise in the labor force, particularly the recent high school and college graduates looking for work, aside from the need to fully re-hire the near 8 million job losses that occurred in the 2008 and 2009 recession. In a normal good year, there would be 2.5 to 3 million annual private sector job gains.
The homebuyer tax credit appears to have done its job in preventing home price over-correction. NAR prices show stabilizing pattern for the past 12 months while Case-Shiller price data show stabilizing patter for the past 18 months. We’ll still need to wait several more months to get a definitive gauge on price stabilization. At this point, we’ll see how the housing market behaves in the absence of the stimulus medicine. As with any sectors in the economy, it is very unhealthy to be dependent on government help for a long period. Compelling affordability conditions and some job creations are a move in the right direction and we have to just allow some time for these factors to work their way into the system. But an important question that will linger is of when consumer confidence will genuinely return to close on the deal.
Reprinted from REALTOR® Magazine September 2010 with permission of the NATIONAL ASSOCIATION OF REALTORS®. Copyright 2010. All rights reserved.
How to make your house spectacularly haunted for one day
(ARA) – Most days, you probably want visitors to feel welcome and secure in your home. But one day a year, it's fun to scare the dickens out of them – so make the most of Halloween and all the good-natured frights that come along with the spookiest of holidays.
While your neighbors may pull out all the stops decorating outdoors for Christmas, an over-the-top Halloween display can also earn you a place in neighborhood lore. The Halloween decor experts at online retailer SeventhAvenue.com offer some tips to consider as you create a spooky playground to impress the trick-or-treaters:
- Know your audience. It might be a good idea to match the level of scary in your Halloween decorations with the age of the children you expect to come trick-or-treating. For younger children, think fun. Older kids might appreciate a good scare.
- Choose a theme. Halloween is the perfect holiday for creativity, so when it comes to the front yard, don't limit yourself. Decorations that center around a theme are the most impactful and will delight children when walking to your doorstep. You could choose something as simple as a graveyard theme, leading visitors through a path of gravestones and creaky gates, with zombie decorations for good measure. Or use ideas from your favorite scary movie. If you need ideas, try browsing outdoor Halloween decor at online retailers like www.seventhavenue.com.
- Direct traffic. Now that you've chosen a theme, think about how you want your guests to experience it, beginning with the sidewalk and ending with your front door. For example, if you went with a Dracula theme you could lead your visitors to the front door with lights that resemble chandelier candles. Solar lanterns could also be used to light the path, as they won't leave you burning through batteries or electricity. Well lit signs could also be used to lead visitors through a scavenger hunt through your front yard.
- Dress the part. To make your theme really work for you, wear a costume to the door that goes along with it. It's a great way to get in touch with your inner child and to thrill the kids in your neighborhood.
- Safety first. While it's great to create the scariest yard on the block, you should also make sure it's safe. Walkways and hazards like ponds or stairs should be well lit.
- Get help from nature. The trees in your yard make a great place to hang spooky decorations. Use old grass clippings to give a spookier feel to zombies and gravestones. You can use leaves as stuffing paper for bags and figurines, filling them with life.
- Treats matter. We all know the number one reason kids look forward to Halloween is the bounty they'll bring home from a long night of trick-or-treating. Considering that everyone else will give out candy, make your house more memorable by giving a toy related to your theme. Or, give glow bracelets that are not only fun but will also keep them safe by making them visible in the dark.
Courtesy of ARA Content
Cooking Corner
Ingredients:
1 tablespoon butter
1 red cabbage, sliced 1/4 inches thick
Salt and freshly ground black pepper
1/2 red onion, sliced
2 sweet apples, quartered and sliced thin
6 allspice berries, lightly crushed, wrapped in cheesecloth and tied
1/3 cup red wine
1/3 cup red wine vinegar
1/4 cup molasses or cane syrup (the cane syrup is lighter in color)
Directions:
Melt butter in a deep saute pan with a cover. Once the butter's melted, and the foam's subsided, add the cabbage and stir to coat.
Add salt and pepper, to taste, red onion, apple, and allspice packet, cover the pan and lower the flame to low-medium, turning once in a while, until the cabbage is soft, but still slightly firm, about 15 minutes.
Remove lid and deglaze with the red wine, bring up flame and cook, uncovered, until the wine is reduced by at least half. Add the red wine vinegar reduce a little, add the molasses or cane syrup and toss to coat. Cook 2 to 3 more minutes, remove allspice packet, season with salt and pepper, to taste.
Photograph courtesy of FoodNetwork.com
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