The real estate market may be raring to go, but increased regulations and tough underwriting imposed during the crash are still reining it in, according to panelists at a discussion on the outlook for the residential real estate market.
The panel, co-sponsored by Banker & Tradesman and the Massachusetts Association of Realtors, featured perspectives from lenders, appraisers, and brokers.
Alicia Sasser Modestino, a senior economist with the Federal Reserve Bank of Boston, gave the keynote address on the general state of the regional economy and its impact on the housing market.
"Although we’ve been posting job gains in our region, it’s been unsteady, with a series of ups and downs," though Massachusetts has fared better than the rest of New England, Modestino offered. But the state has yet to recover all the jobs lost in the Great Recession. Underemployment – people working part time who’d rather be working full time – also remains very high.
That has translated into a slower recovery in the housing market as well, with Boston area prices not recovering as quickly as in other big cities. But there are also positive signs for Massachusetts and the region, Modestino said, with foreclosures down sharply and increases in new housing permits.
"We have the foundations in place for a strong recovery," she said.
However, one construction lending executive explained that while housing prices have been in decline for much of the past few years, construction costs have been on the rise.
"From a builder’s perspective, I think it’s a mixed bag," said Mark Leff, senior vice president of construction lending for Salem Five.
In particular, recent changes to the Massachusetts building codes which are meant to encourage energy savings have increased costs, he said. That means it’s more difficult for builders to build profitably, and despite increased buyer demand, they’re still finding it difficult to find developable land.
That’s bad news for the market. As panelist Greg Vasil, chief executive officer of the Greater Boston Real Estate Board, pointed out, low inventory levels are the biggest concern in the market today. The past January sales levels were in the top 10 of all time, Vasil said.
"We’ve exhausted that inventory," driving people into the rental market, he added.
Despite the increased demand, deals themselves are still tough to put together, with strict underwriting standards drawing out the process.
Rich Goulet, founder of The Appraisers Group in Belmont, said that over the past few years, appraisals have gone from a "necessary nuisance" in banker’s eyes to a make-or-break keystone in the underwriting process. The end result drags out the appraisal process, with appraisers going back and forth with lenders as their original report is passed through several layers of review.
The strengthening market will help by creating more sales for appraisers to use as comparisons, which will hopefully make the underwriting process smoother as the year goes on. But "we have a ways to go," said Goulet.
Goulet said brokers can help by talking with appraisers – while regulations like the Home Valuation Code of Conduct put some restrictions on appraisers, brokers can still provide appraisers with additional information about the current state of the market, and ought to do so if the appraisers aren’t sufficiently familiar with their local market. For the sake of their own pocketbooks, "you have to sell that appraiser on why this deal should fly," he said.
Panelists were also concerned about the governor’s proposal to allow capital gains taxes on real estate sales.
