Obama needs to take the housing recovery forward

US President Barack Obama must lead phase two of the country’s residential real estate recovery by collaborating with the industry to reduce regulatory uncertainty, it is claimed.

Heading into the election, home price gains were steadfast in the face of uncertainty with the latest figures from date and real estate valuation company Clear Capital showing that prices increased in October on a national, regional, and metro level.

‘Now that the election is finally behind us, there should be no more political risk in addressing the housing problem head on. President Obama's housing policies must evolve to turn the recovery's sprint into a marathon,’ said Dr. Alex Villacorta, director of research and analytics at Clear Capital.

‘With a re-election secured, President Obama has the opportunity to stimulate lending activity by being bolder on policy. National gains of 4.6% over the year were enough to grab the attention of voters, and rightfully so,’ he added.

But he also pointed out that even with the higher than historical annual average returns, lenders are still understandably cautious in the current environment of regulatory uncertainty. ‘And that’s left the middle class out in the cold, enticed by record affordability levels but unable to qualify for a loan. President Obama's opportunity is now to press policy makers to clear up regulations. Only then will lenders have confidence to fully re-engage in the housing market,’ he explained.

While each candidate ignored the political landmine of housing policy, voters clearly couldn't. Whether directly or indirectly, it would be hard to find a voter who hadn’t been adversely affected by the housing collapse, and many are still at risk. While prices are up 4.6% over the year, they remain 37.6% below the peak.

Given these losses, a home purchased for $200,000 in 2006 would likely be worth just $124,800 today. But Villacorta reckons that recent progress gave voters confidence that gains would continue under an Obama Administration.

In addition to national prices being up 4.6% over the year, REO saturation in October declined to just 18.1%. Since the peak in 2009, REO saturation dropped 23 percentage points.

‘Now that the President is free from the shackles of the election, he must focus on bold action that will drive a sustained recovery; a recovery that will directly benefit the middle class who re-elected him,’ said Villacorta.

‘Looking ahead, the Obama Administration’s true opportunity and challenge is in bringing Wall Street and Main Street together. Lifting the paralyzing veil of uncertainty clouding the credit markets can’t come soon enough. A successful outcome will produce regulatory clarification and collaboration between government agencies and the industry,’ he added.

After signing Dodd-Frank in 2010, key provisions like the Qualified Mortgage (QM) and Qualified Residential Mortgage (QRM) are still up in the air. ‘This regulatory uncertainty exposes the industry to higher risk, putting private investors of mortgages on their heels. As a result, fewer potential buyers get loans. If regulations are clarified in a reasonable way, credit will thaw. This will support phase two of the housing recovery, as more of the middle class can qualify for home loans,’ explained Villacorta.

Quarterly price gains picked up momentum in October, after a soft September. While current quarterly gains are all under 5%, October marks the fifth consecutive month of quarter on quarter home price growth.

Nationally, prices edged up 2.1% over the rolling quarter, a slight uptick over September's rate of growth. The West came in strong again, with quarterly gains of 3.7%. The South posted gains of 2% over the rolling quarter.

Previously trailing in quarterly gains, the Northeast saw the largest jump in regional performance. Up 1.7% from September, the Northeast posted 1.9% growth quarter on quarter. Price gains across the low, mid, and top tier sectors all contributed to the region’s quarterly improvement.

Meanwhile, the Midwest was the only region starting to feel winter’s chill. Rolling quarterly growth of 1.0% was 0.9 percentage points lower than September's. Considering the Midwest has typically been the most volatile region, the slight slowdown in growth doesn't sound alarms. The Midwest tends to see quicker shifts in percentage change due to relatively low price points when compared to other regions.

But there are certainly states within the Midwest, like Ohio, that have made notable progress. Ohio’s recorded quarterly gains of 1.6% are secondary to its more substantial long term price growth of 15.0% since President Obama took office. Ohio is a great example of how housing was on the President’s side.

Yearly home prices in October came in strong. National gains of 4.6% are the highest since August 2010, when the first time home buyer tax credit was enticing buyers.

The West posted its first double digit yearly gains since 2006, at 11.4%. While the hard hit region showed little signs of slowing down, it has a long way to go. Current prices are still 42.9% below the peak. On par with quarterly trends, the Midwest saw yearly gains soften to 1.1%. This, in part, reflects higher prices a year ago when the region saw a short uptick.

October year on year home prices in the South and the Northeast made headway, each up at least 1% over September, to 4.2% and 2%, respectively.

The highest performing metros are a diverse group. In October, strong markets like Phoenix and Seattle were beaten by Atlanta. However, Atlanta is in the early stages of a recovery, highlighted by a relatively high REO saturation rate of 37.8%.

Atlanta's growth of 8% over the last rolling quarter represents a significant reversal for the market. Even though REO saturation remains the highest on the list, the new found growth was supported by a 9.7 percentage point drop over the last six months.

While trends are improving, Atlanta's price points are extremely low, with a median price per square foot of just $58. That's nearly half the national median price per square foot of $107. Even slight shifts in price can have a relatively large impact on percentage change for Atlanta.

Cleveland has also had a strong performance with quarterly and yearly gains, of 7.1% and 4.9%, respectively, which outpaced national, regional, and state returns.

The group of lowest performing metros are a great example of how housing trends continue to differ market by market. While Ohio and Virginia are doing relatively well overall, markets like Columbus, Cincinnati, and Richmond are lagging behind, though each has posted yearly growth. The fact that the weakest markets are still posting yearly growth is a true testament to the state of the recovery and voters’ confidence in President Obama's ability to sustain it, according to Villacorta.

 

And after coming in as one of the strongest 15 markets four times in 2012, Tampa landed on the list of lowest performing metros in October. Over the last year, the low tier segment has been a key growth driver for Tampa. But, losses of 5.3% over the last quarter in Tampa's low price segment, homes selling for $62,000 and less, created a drag on the overall market's quarterly gains of 1.5%. Additionally, Tampa's REO saturation rose nearly 1% over the last quarter. While this market continues to see measured growth, it's not on the same trajectory as other markets, like Atlanta.

‘Tampa is a great example of how seemingly small shifts in the status quo can disrupt the momentum of price gains. The housing recovery has been built upon the delicate balance between declining distressed sales and increased buyer activity. Until more of the middle class has access to credit, the recovery will be constrained. President Obama’s work is far from done,’ concluded Villacorta.