Elected and appointed government officials have a tremendous track record of making a huge difference in housing, both positive and negative, as evidenced by the timeline below.

Editor’s note: Lisa Marquis Jackson is vice president at John Burns Real Estate Consulting.


Elected and appointed government officials have a tremendous track record of making a huge difference in housing, both positive and negative, as evidenced by the timeline below.

legislation along new home sales

The series of policies that started with the 1992 act relating to government-sponsored entities (The Federal Housing Enterprises Financial Safety and Soundness Act of 1992) and culminated with the greatest housing market collapse in more than 75 years underscores the impact government can have.

We see 2011 as a very uncertain year for housing, primarily because the powers that be in Washington, D.C., continue to influence the dynamics of the industry. Take note of the following:

  • Passage in the Financial Reform bill is creating tremendous uncertainty in the mortgage industry, primarily because nobody has defined the parameters of a "qualifying mortgage."
  • Discussions on shrinking Fannie Mae and Freddie Mac are underway; they’re currently the mortgage industry lifeblood. (A white paper outlining findings from Treasury is due in January.)
  • Today’s market positives of low mortgage rates and low downpayments are all a result of federal government intervention, and
  • The looming negatives of 2.5 million distressed sales in 2011 are also a result of government influence.

Here is what is on our radar screen going into next year:

  • Low rates: We asked several of our bond fund managers what the market interest rate would be for a pool of mortgages without government backing right now. The results are not pretty!
  • Tedious and costly mortgage environment: Tightening mortgage underwriting, including higher FICO scores, higher downpayment requirements and increasing mortgage insurance costs are all in the cards.
  • Distressed sales will pressure pricing: 2 million-plus distressed sales per year continuing in 2011 and 2012 unless the new Federal Housing Finance Agency (FHFA) director backs our proposal to rent out the REO (bank-owned home).
  • GSE reform: The tax credit and robo-signing delays have stabilized home prices, yet the market is poised for another downturn as the REO gets sold. Because of the current slowdown, many of the elected officials believe that the housing market is stable and the GSEs (Fannie Mae, Freddie Mac, Ginnie Mae) can be significantly curtailed. That said, Washington does not move quickly. There will be hearings and headlines, but in reality, this could end up being a project for the next president.
  • Mortgage interest deduction: We have been saying that Congress won’t mess with the interest-rate deduction, except maybe to drop the cap below $1 million. We are becoming more concerned that the cap might be lowered significantly. A drastic decline in the cap, or a phased-in decline, would impact the move-up builders and a minority of expensive states dramatically.
  • A new attitude: A policy shift from promoting homeownership to promoting rental housing seems to be playing out.

In conclusion, we need to "stay focused" and "stay tuned." While big curveballs could be thrown at the housing business, the most likely scenario is that government intervention will make homes slightly harder to sell over the next few years.

There is plenty of short-term risk ahead. Focus on good locations where people want to live, and plan for having to sell homes to higher credit-quality buyers. Stay more informed than ever because surprise announcements could impact consumer confidence and sales positively or negatively. In turn, that could dramatically affect homebuying sales, volume and pricing.


  • We collect a complete history on 70-plus variables and forecast the important ones by forecasting each metropolitan statistical area (MSA) and rolling it up.
  • In this monthly report, we publish the current stats along with the historical minimums, maximums and averages as a service to the industry.
  • Each indicator is graded based on a bell curve where an "A" is its historical best, a "C" is its historical average, and an "F" is its historical worst. The grades are designed to provide a simple tool for decision-makers to scan the data.
  • Each of the eight categories has a grade that is nothing more than the average of the grades under it.

Economic growth: C-

Economic growth trends improved slightly this month, as several key metrics have ticked up recently. The real gross domestic product growth rate improved from the second quarter, and retail sales continued to improve this month. The employment market continued to improve gradually as year-over-year employment growth increased again this month, while initial jobless claims decreased. In addition, personal income growth increased this month and inflation remains low.

Leading indicators: C-

The leading indicators for the economy are generally more positive than negative this month. The Leading Economic Index was down slightly but remains comfortably in positive territory. Also, the ECRI (Economic Cycle Research Institute) Leading Index became less negative once again.

Stocks were up huge and corporate profits are still quite positive. The money supply increased slightly this month, which usually leads to more spending.

Interest rates declined in October, indicating that lenders are less worried about defaults. The attitudes of those who would make hiring decisions captured in the Vistage CEO Confidence Index reflect improved confidence in continued economic growth. Temporary employment has increased by 23 percent year-over-year, yet the number of postings on Monster.com decreased.

Stocks have had a solid month in October, effectively erasing losses incurred over the first eight months of the year. All four major indices we track — the Dow, S&P 500, NASDAQ, and Wilshire 5000 — were up in October and have increased even more year-over-year.

However, the S&P Homebuilding Index declined in October. This index has been hammered recently and has declined 28 percent from the most recent peak in April as weaker-than-expected homebuilder orders and CEO commentary worried investors.

Affordability: D+

Affordability has rarely been better for entry-level buyers, and rarely worse for move-up buyers, who need to extract equity from their existing home. Mortgage rates remain historically low and home prices have dropped from unrealistic boom levels to entirely sustainable levels, with some markets even heading into "over-correction" territory.

Our housing-cost-to-income ratio continues to decline, now at 24.3 percent, and our JBREC Affordability index stands at a remarkable 0.0 (on a scale of 0 to 10, 0 being most affordable). The median home price to income has declined to 3.2, which is near the long-term historical norm and a level conducive to market health.

Affordability continues to be bolstered by historically low mortgage rates. The 30-year fixed mortgage rate dropped to 4.23 percent and adjustable mortgage rates fell to 3.3 percent. The Fed’s overnight lending target rate remained at a range of zero to 0.25 percent, which is the lowest level on record.

The share of adjustable-rate mortgage applications decreased to 5.3 percent this month and is still far below the peak level of 35 percent of total applications in early 2005.

Consumer behavior: D+

Consumer behavior worsened slightly this month, with most metrics declining. The Consumer Sentiment Index and the Consumer Comfort Index both declined this month, while the Consumer Confidence improved modestly. The Misery Index increased, and net worth was down slightly, both in terms of growth rate (5.9 percent) and net worth per household ($477,380).

However, consumers are saving more with a minor improvement in the personal savings rate to 5.8 percent, and consumer debt was down a bit with consumer credit per household decreasing to $7,327.

Existing-home market: D

The existing-home market improved somewhat this month after worsening markedly due to the federal tax credit "hangover" that started in May. Seasonally adjusted annual resale activity increased to 4.53 million homes this month.

On a rolling 12-month basis, sales have decreased 2 percent compared to the previous month, but have increased 6 percent year-over-year. The number of unsold homes dipped to 10.7 months of supply from 12 months, but remains well above the historical average of 7.3 months.

The most encouraging metric may be pending sales. This measure had been trending downward, but has now risen for the past two months. Though still near a record low, the change in trend is positive. The number of inventory homes inched downward.

The S&P/Case-Shiller U.S. National Home Price Index improved once again, and has returned to positive territory this quarter for just the second time since late 2006, increasing 3.6 percent year-over-year.

New-home market: D+

The new-home market improved slightly this month. Builder confidence improved this month as the Housing Market Index increased to 16 from 15 one month ago.

New-home sales increased to 307,000 units on an annualized basis. Coming off months of post-federal tax credit declines, this increase is a modest positive sign. It should be noted, however, that the sample size used by the Census Bureau to calculate new home sales is extremely small and the confidence interval consequently large.

The median single-family new-home price also increased to $223,800 and is up 2 percent year-over-year. The months of unsold homes metric decreased to 8 months, albeit still at a level well above the historical average.

Repairs and remodeling: D+

Conditions for residential repairs and remodeling were slightly down this month. The Remodeling Market Index increased compared to the previous quarter, rising to 43.4, below the historical average of 46.6. Private residential construction softened this month and has now returned to a negative growth rate at -6.3 percent.

Residential investment as a percent of GDP inched down to 2.2 percent this quarter. However, homeowner improvement activity has actually returned to positive territory for the first time since second quarter 2007, climbing 1.8 percent year-over-year, and is much better than the severe declines experienced a couple of years ago.

Housing supply: F

Housing supply indicators worsened this month. New housing units were down, as were single-family starts to 436,000 units. Single-family permits increased this month to 406,000 units. All of these activity levels remain very low by historical standards.

Vacancy rates in the U.S. have improved in recent quarters, but the majority of the U.S. remains oversupplied compared to history, with only six states undersupplied, all with small populations except Texas. The homeowner vacancy rate decreased this quarter to 2.5 percent, which is down from 2.6 percent last quarter.

Copyright 2010 John Burns

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