TRAVERSE CITY — The National Association of Realtors released its national housing numbers on the same day one of its economists appeared in Traverse City to deliver the news in person:
The U.S. housing market is on the upswing, and Traverse City is one of the bright spots.
That was the message Jed Smith, managing director of quantitative research for the National Association of Realtors brought to the Economic Club of Traverse City on Friday. The Traverse Area Association of Realtors was instrumental in bringing Smith to Traverse City to offer his take on the future of the real estate market.
He offered a mix of encouraging news tempered by a few unknowns.
"The good news is we're out of the recession and getting back to quasi-normal," he said. "The bad news is it's a mediocre recovery."
Smith said predictions hold that nationally, home sales will come in at around 4.8 million for the year, 11 percent above the 4.28 million-unit pace reported in September 2011, but a number that Smith said could be 10 to 15 percent better if consumer confidence was higher.
"This is the first year of really good news, and while I call it mediocre, with 2 or 3 percent growth versus what we'd like to see, it's still very good news versus the contraction that we previously had," Smith said. "And in the case of Traverse City, Traverse City is actually doing appreciably better than the rest of the economy."
Recent numbers released by TAAR showed sales and prices substantially up across the region.
Market inventory falls
Nationally a year or two ago there was a roughly 10-month inventory of houses on the market, Smith said. Today it's more like six months, which he said is normal.
"In a normal market, prices tend to rise a few percent a year, and we're seeing possible price rises in the next year of 3 to 5 percent," he said. "Here in Traverse City, I think the price rises have been closer to 6 to 10 percent."
New construction isn't where it needs to be yet at the national level. In the past few years, building permits numbered around 700,000; this year they might reach 1 million. But that's short of the 1.5 million figure that indicates healthy new construction. The biggest obstacle, smith said, is builders' ability to get financing.
"Each new construction house produces two to three jobs. These are the folks building the house, so that of course ripples through the economy," he said. "If we could get another 700,000 houses (built), that might be around another 2 to 3 million jobs, which is exactly what we need right now."
Smith said other factors slowing the market include unemployment and lending, or lack thereof. It used to be that 40 percent of buyers had credit scores greater than 740; now that number is at 55 percent.
"What this says is banks are very, very selective in their lending right now and it's very difficult in many cases to get a mortgage," Smith said. "The banks are real risk-averse. This is a reaction to the previous situation where they were not risk-averse enough. So we've swung from one extreme to another."
Smith said NAAR advises its members to encourage customers to apply to local banks and credit unions rather than large national groups. Clients who get turned down at one lender should try another one or two.
"Local banks, community banks, regional banks, savings and loans, credit unions "¦ they're making a larger percentage of the loans," he said. "And just because you're rejected for a loan, doesn't mean you're not a good credit risk. It just means the institution isn't making that type of loan."
Commercial market lags
Appraisals also have been a factor, Smith said.
"There are a lot of appraisal issues that are resulting in one out of three transactions being slowed down or in a few cases being sold at a lower price or canceled, and that continues to be a little bit of an issue," he said. He added: "The Realtor has the right to argue that foreclosures and short sales sold under duress are not indicative of the value of the property."
On the commercial side, Smith said the market tends to lag a year behind residential. New construction has started to return, though sales of existing commercial properties nationally are way down from their peak in 2007 and 2008.
Smith's one "major caution" had to do with the "fiscal cliff" that the U.S. government will face at the end of 2012 if Congress doesn't act to deal with tax increases and spending cuts that kick in for 2013 and are predicted to result in another massive economic slowdown.
But Smith, who is based in Washington, said the general sense there is that Congress will act in time.
Kim Pontius, TAAR executive vice president, said Smith's message was a welcome opportunity to get a look at real estate's big picture.
"As a market we are trending slightly ahead of the national average as far as prices and days on the market being lower," Pontius said. "It's good to know we're in good shape compared to the nation."