Blog entries tagged with "confeence board"

2007 Real Estate 2008 - Part 3

Let’s talk recession & affordability.

Conference Board

Economic/Business Research Organization
90-year old organization
Consumer Confidence Index
Leading Economic Indicators

Their prediction: Continue to signal weak economic growth ahead but not a recession

National Bureau of Economic Research

Leading non-profit, private, economic research organization
Predicts when recession occurs and ends

Their prediction: 50% odds a recession will occur

Mortgage Bankers Association

National association representing the real estate finance industry
Advocate for their members and promote fair and ethical lending practices

Their prediction: Economic growth will continue to slow through the 1st half of 2008 and pick up in the 2nd half of 2008

Gold I was talking to Mike Tacconi, former President of the California Mortgage Brokers Association, the other day and he told me that inflation is a concern – gold is up 15% so far this year and silver is at a 27 year high. Mike also has an interesing chart on his site about the effectiveness of economic stimulus packages.

At today’s Realtor’s Marketing Association meeting, Mike said that given the confluence of market forces, this is exceptionally favorable time for home buyers.

Affordability is, and always will be, the primary real estate issue. When affordability drops too low or too fast, a market correction has to occur – the number of home sales decreases and selling prices will ultimately drop.
The more dramatic the run-up in home appreciation, the steeper the decline in sales and prices will be at some point.

Affordability Index: Measures whether or not a typical family could qualify for a mortgage loan on a typical home.

General Interpretation:

Value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home
Above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20% down payment

Interpretation (2007):

112% – Means a family earning the median family income has 112% of the income necessary to qualify for a conventional loan covering 80 percent of a median-priced existing single-family home.
22% of income: The monthly mortgage payment is 22% of the median family income

3 factors that impact affordability:

Income
Home Price
Cost of money: Interest Rates

The comparison of the median household income to the amount necessary to buy a median-priced home (Standard affordability = 100%)

2004 – 124% (20% of income)
2005 – 112% (22% of income)
2006 – 106% (24% of income)
2007 – 112% (22% of income)

Affordability Is Always Felt Locally

When the market shifts locally it usually shifts in a dramatic and rapid manner
Local areas that have the greatest and fastest appreciation will typically deal with the most dramatic down shifts
Affordability must be tracked in each metro and micro market – that is where sellers and buyers have to deal with the issues

Housing Opportunity Index – The share of homes sold in that area that would have been affordable to a family earning the local median income based on standard mortgage underwriting criteria.

Two major components: