Winter 2009 Prudential Fox & Roach, Realtors Chairman's Report

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Winter 2009 - A Message from Lawrence F. Flick, IV
Chairman and Chief Executive Officer
Prudential Fox & Roach, REALTORS®

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Winter 2009 Prudential Fox & Roach, Realtors Chairman's Report

  1. 1. The Chairman’s Report A Message from Lawrence F. Flick, IV Chairman and Chief Executive Officer Prudential Fox & Roach, REALTORS® WINTER 2009 “It is always darkest just before the day dawneth.” When Thomas Fuller penned these words in 1650 he “Five or ten years from now, when the financial crisis could not have imagined the world as we know it. And has ended and housing prices are up smartly once now, more than three centuries later, we too find more, we will look in the rear-view mirror and ourselves living in a time that seemed impossible only a realize that we missed a golden age for first-time home year ago: the sub-prime mortgage debacle, a declining buyers,” says Ron Lieber of the New York Times. real estate market, the failure of major investment “Then, everyone who sat…for a few years too long banks, government rescues of major banks, AIG, will kick themselves for not taking advantage of what auto industry woes, massive levels of government may turn out to be the buying opportunity of a intervention…we are experiencing extraordinary times. lifetime. Unfortunately, we do not know when this But no matter how dark the forest, a ray of light always golden age will begin, because we will be able to manages to find its way through the leaves. And like identify a bottom in the housing market only with the benefit of hindsight.”1 this time of year, when the length of night is longest, we know that daylight will soon prevail. In the Prudential Fox & Roach market area, talk of a It’s human nature to hibernate when it’s dark. And housing bottom is different than most areas of the that’s what many are doing now — laying low until a country because prices have remained relatively stable. sense of economic brightening sets in. Where real estate Other parts of the country have had a harder time. But is concerned, home buyers are waiting until the market real estate is like the weather: it is the local conditions “hits bottom” before making a move. So just when will that matter. Our area has had a significant decrease in we see the bottom of the market? The bottom is usually the number of houses sold this year, but it has not the darkest moment. But we rarely know when that experienced the substantial price declines that haunt time is upon us. Even the most experienced real estate Florida, California and Nevada. Prices in some of those professionals find it nearly impossible to pinpoint when areas rose at unsustainable rates, and now the amount the market will turn and typically will not hazard a of foreclosures and excess new construction have driven prices down as much as 42% over the past two years.2 guess. Before most of us even realize the dawn has come, the sun will have already risen on the market. But even in the foreclosure-prone areas of California, unit sales rose 26% to 28% in the third quarter of 2008, perhaps signaling the bottom of that market. 1
  2. 2. Local Market Statistics Increased Demand for Housing When the economy turns around, and consumer In the Prudential Fox & Roach market area including confidence increases, a pent-up demand will be southeastern Pennsylvania, New Castle County, unleashed. Then there will be many more buyers in Delaware, and Burlington, Camden and Gloucester the marketplace and the opportunity to buy at the Counties, New Jersey, two paired sales indexes show best time will have passed. Prices and interest rates that house prices fell modestly through the third will once again be on the rise, and competition quarter of 2008: among buyers will increase. OFHEO2 Case Shiller3 Change over 1 year Politics Philadelphia - 1.81% - 2.13% Whether you felt joy or disappointment upon hearing New Jersey - 3.28% - 6.85% the November election results, the fact that America Wilmington - 2.19% - 5.76% has a new leader is good for our nation’s economy, including real estate. There is fresh energy that is But over five years, housing has proven to be an focused on moving our country forward to economic exceptional investment: recovery. The new administration will build a Change over 5 years2 OFHEO foundation for economic stabilization and new Philadelphia + 44.64% stimulus packages will be created for homeowners New Jersey + 45.92%s and homebuyers. Solutions will be developed to Wilmington + 45.51% stem the tide of rising job losses. We will also begin to see more results of programs developed under the Foreclosures in our area are well below the national previous Congress. average. Less than one-third of 1% of households is in some stage of mortgage default or foreclosure.4 Demographics There is a new generation entering the workplace Private Mortgage Insurance Company, the nation’s and they are starting to buy their first home: leading provider of mortgage insurance, rates the Generation Y. They are also having children. The chance of price declines in our area in the next two National Center for Health Statistics reports that years as minimal, or less than a 2.1% chance that more than 4.3 million babies were born to US prices will decrease any amount.5 families in 2007, more than any year of the baby Demand for Housing—Should You boom.6 Their impact on our economy and housing Buy Now? market will be greater than that of the baby boomers and will have a very positive impact on long-term Throughout this time of economic uncertainty, we housing values. have a choice: we can continue to hibernate, or we can take advantage of present conditions. Right now, Consumer Opinion most people are hesitant to make financial decisions. In a recent survey, more than two thirds of Those who would like to buy a home are holding potential homebuyers said they delayed purchasing back until they are sure that the real estate market a home because of overall economic conditions. and economy have turned around. But is this the best Yet approximately 5% of consumers said they plan to strategy? I don’t believe it is. Here’s why: 2
  3. 3. Real Estate as a Long Term Investment buy a home in the next 12 months. That’s about Real estate markets have their ups and downs, so it’s three times the percentage of people who bought a best not to look at housing strictly as an investment. home in 2008. An additional 17.7% said they will Owning a home is more than an investment: homes buy a home in one to five years.7 provide us with Interest Rates shelter in a community This Decade, It Has Been Better To Invest In Housing One definite ray of Than In The Stock Market where we can raise 200 light filtering our children STOCK PRICES (Wilshire 500) 180 through this and enjoy our PHILADELPHIA AREA HOME PRICES (OFHEO) 160 economic darkness lifestyle. Homeowners 140 is mortgage interest take advantage of tax 120 INDEX VALUE rates: right now deductions and 100 they are at historic increasing home 80 lows. In December values. But over 60 of 2008, after the time, real estate has 40 government proven to be a stable 20 announced it 0 financial investment would purchase 2001 2002 2003 2004 2005 2006 2007 2008 for individuals Source: Naroff Economic Advisers $600 billion of and families. Fannie Mae and Freddie Mac mortgage backed securities, rates for conforming loans dropped The Dawning of a New Day dramatically — over 100 basis points to date. It’s always darkest before the dawn. If you are This sparked a marked increase in the number considering buying a home, I urge you to think now of refinances and new mortgages. The Fed about a move from hibernation into the warmth of has indicated that it is committed to keeping the first light. Historically low interest rates and mortgage funds available at historically low rates. greater affordability are combining to create one of This will begin the unleashing of pent-up demand the best buying opportunities ever. Our Prudential and the stabilization of the market, paving the way Fox & Roach sales associates and Trident Mortgage for an upturn. Once the economy does begin to loan consultants can show you the way. Please recover, the Fed will anticipate inflation, and contact them today. begin increasing the fed-fund rate, leading to higher Sincerely, mortgage rates. Affordability From 2003 to 2006, house prices rose 10% to 12% each year. As a result, houses became too expensive for many buyers. Since then prices have held steady, and in some cases, decreased modestly. Given that Lawrence F. Flick, IV this has occurred over a time period when real Chairman and Chief Executive Officer disposable income has increased8 and interest rates Prudential Fox & Roach, Realtors® have dropped, housing is now more affordable than any other time in the past decade. 3
  4. 4. AN INDEPENDENT VIEW Joel L. Naroff, Ph. D., is the Buying a home is once again becoming a reasonable President and founder of thing to consider. While we may not be at the Naroff Economic Advisors. He absolute bottom of either mortgage rates or of home serves as Chief Economist for prices, houses are now extremely affordable and TD Bank and is a consultant available. For those looking for the absolute lowest to Prudential Fox & Roach, rate or cheapest price, that strategy often fails. Most Realtors and The Trident of us don’t recognize that a bottom has occurred until Group. A nationally well after it has happened. Unfortunately, that has recognized economic forecasting always been the situation in every cycle. expert, Joel was awarded the In the Philadelphia region, prices neither rose rapidly Lawrence Klein Award for Blue Chip forecasting nor have fallen dramatically. There are even large excellence and was the Bloomberg Business News top portions of the city of Philadelphia and some economic forecaster in 2008. In 2007, he received the suburban towns where prices are either still rising or National Association of Business Economists Outlook are only edging downward. The price risks may not Award and was named the top economic forecaster by be that great in many neighborhoods. The window of MSNBC in 2006. opportunity is clearly opening and as mortgage money becomes more available and cheaper, now just may be the time to consider making the move back into the housing market. Sources: 1. “Maybe It’s Time to Buy That First House.” Ron Lieber, New York Times. December 7, 2008. 2. Federal Housing Finance Agency (formerly reported as Office of Federal Housing Enterprise Oversight (OFHEO). News Release, November 25, 2008. Repeat sale index Q3 2008 over Q3 2007. 3. Standard and Poor’s Case Shiller Local Indexes. Q3 2008. 4. RealtyTrac Quarterly Foreclosure Activity Report. December 11, 2008. 5. Private Mortgage Insurance Company. Economic and Real Estate Trends. Fall 2008. 6. U.S. Department of Health and Human Services. National Vital Statistics Reports Volume 57, Number 3. August 21, 2008. 7. Real Trends, Castle Rock, Colorado. Update #1056. November 2008. 8. Bureau of Economic Analysts, National Income Accounts data through 2007. (2008 data not yet available for inclusion in this report.) An Independently Owned and Operated Member of the Prudential Real Estate Affiliates, Inc. 4

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