WASHINGTON, Aug. 30 (UPI) -- Members of the Washington-based Homeownership Alliance said Monday the homeownership and housing markets look generally rosy for the latter half of 2004, but indicated that housing affordability poses a problem in some markets.
During a conference call, economists said this year's mortgage and sales record-setting trend as well as the growing economy would push the housing market along in spite of slightly higher interest rates.
The consensus was that interest rates are generally expected to rise from their current average of about 5.8 percent to about 6.25 percent by the end of the year.
Last year, the Homeownership Alliance began hosting the biannual conference call featuring the chief economists of the five charter members of the organization.
"Bankers continue to report steady and solid loan business for home construction and sales. The housing sector of our economy may well be on track for another record-setting year, which is not surprising given interest rates are still at very attractive levels for consumers," said Paul Merski, chief economist for the Independent Community Bankers of America.
"Credit quality has been improving and continues to improve, even after several red-hot years in mortgage financing and refinancing," he said.
Also, for the first time in 13 quarters, commercial and industrial lending has seen an upturn of 2 percent in second-quarter 2004, he said.
David Seiders, chief economist for the National Association of Home Builders, pointed out that single-family homeownership reached an all-time high of 69.2 percent. He also said that although the apartment market is facing record-high rental vacancy rates -- a counterpart to record-high homeownership rates -- a strong condo market is providing good support to multifamily housing production.
Home builders' biggest problems at this point on the supply side, including labor, materials and permits, according to NAHB surveys of builders, Seiders said.
"The boom continues," David Lereah, chief economist for the National Association of Realtors said.
While nationally, there has been an approximately 7 to 8 percent price appreciation, some areas have seen prices skyrocket, like Las Vegas, which has seen a 52 percent price appreciation, Lereah said.
But there are also some areas that haven't seen much of a bounce. "There are some metro areas that have not participated in significant price increases," including South Bend, Ind., Syracuse, N.Y., Little Rock, Ark., Detroit, Atlanta, Austin, Dallas, and New Orleans, which have only seen an average appreciation of about 2 percent or less for the year, Lereah said.
"When you look at the disparities you can see that the price appreciation for (one) group ... experienced significant approval averaging 31 percent, that will give homeowners an $87,000 one-year wealth gain, compared to other metro areas that are not experiencing significant appreciation where their wealth gain is close to zero -- so there is a housing boom, but it's not impacting everyone."
David Berson, chief economist at Fannie Mae, said those areas with weak appreciation are mostly areas high in manufacturing, but indicators show manufacturing picking up. Therefore, "A lot of the areas that have seen some of the very weakest price growth over the last couple recent years are likely to see at least modest pickup in price growth in the coming years," Berson said.
Economists also spoke out against the perceived "housing bubble."
"There is no national price bubble -- there never has been and never will be," Lereah said. "That's just not how real estate markets work. Real estate is a very local phenomenon -- you have local supply and demand conditions that determine home prices," he said.
Berson also agreed that there is no such thing as a "housing bubble."
"In no year have home prices declined one year to the next on a national basis ... it's very difficult for home prices to go down on a national basis," based on data going back to the 1950s. Such a collapse probably hasn't happened since the Great Depression, Berson said.
Some middle-income demographic groups are apparently having a lot of trouble buying houses in areas where they work, such as teachers and police.
There are many different types of government homeownership assistance for such public servants, Lereah said, but in some ultra-pricey metro areas like the San Francisco Bay area, it's still a problem for these groups to find housing. Also, "They tend to be left out -- we always tend to focus on low income households, but it's important to place some emphasis on the middle," he said.
Seiders said his organization plans to put on a symposium on providing workforce housing later this year, to figure out how everyone in the industry can work together to address this issue.
"If you're a renter, it's really is difficult to make that transition to ownership if your income is pretty stagnant as a lot of public servants' are -- there are legitimate affordability issues out there in the midst of this housing boom."
Looking at another result of the housing boom, Frank Nothaft, chief economist for Freddie Mac, said he expects home equity lending will increase as refinance activity decreases from about 50 percent of new applications in first-half 2004 to around 35 percent in 2005.
"Home equity lending will be up as that will be the preferred loan product to convert home equity into cash." As the pool of those with higher rate mortgages diminishes -- only 1 out of 8 now have mortgages with rates above 7 percent -- the pool of those with an incentive to refinance will shrink.
He also said that interest-only ARM (adjustable-rate mortgage) loans could pose a long-term credit risk. ARMs -- which now make up 3 out of 8 new mortgage loans -- though increasing loan affordability in the current high-cost market, could pose a higher credit risk since people aren't building home equity through paying off principal. ARMs eventually adjust to the current interest rate -- which could be significantly higher than the originating rate -- and payments increase as borrowers start paying off the principal.
