Like a flustered EMT with a comatose patient, federal officials are desperatelyprodding the housing market to try to revive the sluggish purchase side, but it’s not clear how much their efforts can do to turn it around, local lenders and experts say.
Heading into the final weeks of the year, residential sales were nearly flat in the Bay State. According to data from The Warren Group, publisher of Banker & Tradesman, though November single-family sales were down 2.4 percent compared to last year, median prices were up 1.6 percent; the situation was reversed for condos, with sales up 1.7 percent and median prices down 4.6 percent.
These sluggish housing figures come at a time when the broader economic picture has begun to brighten: 2014 saw the most new jobs in the U.S. economy of any year since 1999, while the unemployment rate in Massachusetts dipped to 5.8 percent last month, a 1.3 percent improvement from the same time in 2013, and 12th best in the country. A deep dive in gas prices has put more money in people’s pockets in recent months, while turmoil in the broader global economy has sent investors scurrying into the relative safety of U.S. Treasury bonds, keeping interest rates low. And 30-year fixed rate mortgages again dipped below 4 percent in recent weeks, after hovering just above that figure for much of the year.
Fannie And Freddie Go Low
But even all that good news hasn’t been enough to nudge potential buyers off the sidelines, and the problems seem to start at the bottom of the property ladder. According to the National Association of Realtor’s annual profile of buyers and sellers, only 33 percent of home purchasers were first-time buyers in 2014 – a drop of 5 percent from last year and the lowest the number has been since 1987. More typically, that number’s about 40 percent.
Federal officials are hoping to restore that figure: Earlier this month, head of the Federal Housing Finance Agency Mel Watt announced that Fannie Mae and Freddie Mac would begin accepting loans with down payments as low as 3 percent of the home’s value. The Fannie 3 percent down program will launch this month; Freddie’s similar offering will begin in March.
“We are working to remove barriers for creditworthy borrowers to get a mortgage. We are confident that these loans can be good business for lenders, safe and sound for Fannie Mae,” Andrew Bon Salle, Fannie Mae executive vice president, said in a statement covering the launch.
The new deal provoked dire warnings from critics that the bad old days of lending were back – very low- or no-down-payment subprime loans played a prominent role in the housing crisis. FHFA officials counter that by requiring higher credit scores and/or mortgage insurance, such loans can be made sound.
But the bigger problem with Fannie’s move may simply be that it’s not enough, lenders point out. Similar loan products, like those from the Federal Housing Administration and state organizations like MassHousing, are already widely available to borrowers.
“Sadly, it’s not going to have an effect,” said Brian Koss, executive vice president of the Danvers-based Mortgage Network. “Sure, it helps. And the general change of attitude from Fannie and Freddie to the investor community, that they’re going to be less fanatical about their requirements, will help – a few loans, on the fringe.”
Despite Fannie and Freddie’s newly declared openness to lending to moderate-income borrowers, the stringent new regulations passed in the wake or the crisis, particularly the so-called “ability to repay” rules, have kept lenders wary of pushing the envelope by extending credit to applicants whose incomes or credit scores don’t sit squarely within the guidelines.
And that may apply to many potential first time buyers. The Millennial generation of young adults will make up the majority of first-time purchasers in 2015, and with many of them burdened by higher student loan debt or struggling to launch their post-college careers during the economic downturn, coupled with rapidly rising rents in cities like Boston, there may simply be fewer of them who have the savings or the confidence to take the plunge into homeownership in the near future.
Condos Catching Up To Single-Families
Boston in particular may be witnessing a structural shift in this regard, said Barry Bluestone, an economist and Director, Kitty and Michael Dukakis Center for Urban and Regional Policy at Northeastern.
“There are two factors which drive the housing market: The economy, and major demographic shifts,” like the wave of European immigrants in the 19th century and the post-WWII baby boom that created the suburbs, explained Bluestone. Nowadays, a combination of a burgeoning tech economy an a wave of retirees looking to downsize are helping to drive people toward the inner urban core, including Boston and surrounding towns like Cambridge and Somerville.
Demand – and prices – are very high in those neighborhoods, while more typical suburban towns continue to lag behind in price growth. In the early 1990s, he pointed out, the median price of the average condo statewide was about half that of a single-family home, while today they’re far closer. (Year to date, according to The Warren Group’s data, the median sale price for a single-family home in Massachusetts was $330,000; for condos it was $310,000.)
The disconnect between where people want to buy – as close to the city as possible – and where they’re looking to sell – in the suburbs – may help to create a gap in the market that can only be spanned by the creation of lots of new housing, Bluestone suggested.
Given the challenges of doing that in an around Boston, many potential buyers may be out in the cold.
“The [3 percent program] makes it cheaper, and that’s a good thing – whenever you make something cheaper, more people will qualify,” said Jay Tuli, senior vice president at Arlington’s Leader Bank. “But as far as it being a game-changer … the devil’s in the details. In a certain income bracket, it becomes very difficult to qualify for a mortgage, and it’s about more than [having] the down payment.”
Email: csullivan@thewarrengroup.com
