NAR economist expects R.I. home sales to increase

Lawrence Yun, the National Association of Realtors chief economist, last week said homebuyer confidence should pick up once potential buyers take note of “all the incentives out there now.” Along with historically low interest rates – averaging 4.8 percent around the country – there’s the $8,000 first-time homebuyer federal tax credit that was approved in February, he said.
“The money is now on the table, so we will see how the consumers respond to the low rates,” he told an audience of more than 200 Realtors April 29 at the Rhode Island Association of Realtors Real Estate Housing Summit in Warwick. “We haven’t seen any measurable impact yet, but that’s understandable because home-buying is not a snap decision.”
Yun compared the slowdown in the Providence residential market to the situation in Los Angeles. The rise in Providence home prices was a “more modest bubble,” but the falling price and glut of foreclosures and short sales has driven the amount of homes being sold in each market. The difference, Yun said, was that in Los Angeles – the unemployment rate in California is 11.2 percent – has recently seen sales up by between 50 percent and 100 percent in many markets. That’s compared to a 7.8 percent sales increase in Rhode Island in February, according to RIAR.
Yun attributed the rise in Los Angeles sales to a “tipping point,” with a large amount of homebuyers deciding at once that the market conditions are the best they’ll be.
“Will that happen in Providence?” Yun asked. “Well, the sales activity was very difficult last year – a very low level of activity. And given the very good affordability conditions, it would suggest that, yes, buyers should be coming back.”
He added, “Will it be 5 percent higher, 15 percent higher? 50 percent higher? I don’t know. Right now it’s all a psychology game and we have to see how it all plays out.”
Yun said Rhode Island’s sales statistics “seem to be stabilizing.” Now, it’s up to homebuyers to decide whether to get back into the market and up to Realtors to tell them about all the incentives, he said.
Speaking before Yun, Leonard Lardaro, the University of Rhode Island economist who tracks the state’s economic well-being with his Current Conditions Index, couldn’t say whether this is the right time to buy a home in this state.
If you are a buyer, “ask yourself, ‘Where do [I] think, in a worst-case scenario, the price of that home would go?’” Lardaro told the crowd. “Then take that down another 5 or 10 percent. If you can get that offer accepted, in all likelihood you’re going to be insulated from downturns. I don’t think prices are going down another 30 or 40 percent.” Historically, the housing and manufacturing industries have led the eventual economic upturn in Rhode Island following a down period, Lardaro said. But those are two of the Rhode Island business sectors that have suffered the most. For example, just 16 single-family home-construction permits were granted in Rhode Island in February, Lardaro said, adding, “So we’ll have to rely on things that we don’t do much of,” including technology.
He added that he’s now seeing a few “bounces” in certain indicators – including consumer confidence – but a turnaround is still months or quarters away.
“There is some potential light on the horizon. It might not be apparent if you look at today’s GDP number” – the U.S. Commerce Department announced that the country’s output contracted 6.1 percent in the first quarter – “but there really is,” he said. “We’re past the maximum rate of decline, that’s not to say that we’re going up, but just going down more slowly.”
Lardaro added, “While we’re not beginning an actual recovery, we’re beginning the process of recovery and that’s going to take a while.”
He said that while the Federal Reserve’s efforts to drop mortgage interest rates and “stimulate spending,” likely won’t have too much of an impact. With changes being made to lending standards, income and income potential are again paramount in the home-buying process, he said.
While some economists think a national upturn in the real estate market could come as soon as this year’s third quarter, Lardaro says Rhode Island’s economy will likely take longer.
Yun agreed that national home sales could increase this year. Based on the current market, he estimated that national home sales will increase by between 10 percent and 20 percent in the second half of 2009. But, he said, that’s an estimate based solely on the mortgage rate predictions and the trends in sales, pricing and other factors. His prediction didn’t take into account whether buyers will, as he said, “get off the fence.”
“This is purely number crunching,” he added. “What’s missing in the numbers is psychology.” •