The Media and the Market

By Ken Trepeta
DIrector of Real Estate Services
November 2007

As we all know, we are facing a more challenging housing market nationally.

The dramatic price and sales gains of the past few years have eased and, in many cases, retreated. Coupled with this slowdown is the crunch in the credit markets. What started as a problem predominantly in the subprime market, spread quickly to virtually all markets outside of FHA and Fannie/Freddie conforming loans. The same markets for mortgage-backed securities that have allowed homeownership to expand so greatly, have now contracted and seized as investors across the world have lost their faith in the quality and pricing of much of those securities. Finally, relatively broad jumps in delinquencies and foreclosure filings, the aftermath of the credit craze, help paint a gloomy picture.

The national media has latched onto these issues with almost exclusive focus on the negative. In fact, the tone of most reports borders on Armageddon. Any decrease in home sales or prices is reported breathlessly as a sign of the ongoing apocalypse. Surely it will not be long before every one of us is homeless. While we all know that this will not be the case, the message to buyers is, “it’s a jungle out there; no matter where you are, steer clear.”

We at NAR have tried to provide a sober balance to this hysteria, presenting the data and providing reasonable explanations in historical and economic context. However, until the data improves or the national media moves on to the next issue du jour, it will be a constant battle to educate consumers and local media about the realities of the housing market and the reasonable opportunities that exist even in the midst of “Armageddon.”

The fact is that in the most recent NAR analysis of home sales by metropolitan statistical area, two-thirds of markets showed enough demand to register price gains.

People in those areas are not likely to see significant drops in prices despite what they are hearing from the national media. In fact they are likely to see continuing price gains, albeit at a modest pace, in most regions. For firms operating in those areas, it is worth highlighting these statistics to consumers and local media on your own or when asked to comment on the local housing market.

For firms operating in areas where there have been price drops, it is important to be candid about that. It is also important to emphasize the opportunities for bargains, especially for those who are planning to make a future in the area. Home values have a history of steady growth over time. More importantly, people might be missing out on a golden opportunity to buy their dream home at a discount price and with mortgage rates at or near historic lows. People should be looking for opportunities because they are out there. It is impossible to absolutely time the market, and those that try often only wind up pushing back the realization of their dream of homeownership.

For all real estate markets, the questions surrounding the mortgage market loom, especially for consumers. We are not likely to see the same unadulterated flow of easy mortgage credit again. Frankly, that is a good thing for the market and for consumers. The investor market will regain its faith in mortgages as an investment tool, and consumers will know they are getting mortgages that they can repay. For the industry, agents, loan officers and salespeople will have to get used to the fact that they will not be able to qualify a buyer based upon their heartbeat and mere desire to own a home. For consumers, they will have to reacquaint themselves with down payments, income checks and credit ratings. Most will still be able to purchase homes, but they will have to work a little harder at it.

The good news is that we are likely to have some good substitutes for the products that no longer exist. FHA modernization will be a boon to first-time home buyers, people with smaller down payments, and people with blemishes on their credit history. It won’t replace every subprime or exotic loan and it shouldn’t, but it will provide opportunities to many. If Congress acts on increasing the Fannie/Freddie loan limits (and as of this writing they might), they too will be able to serve more home buyers with quality loan products.

The bottom line is that the housing market is not in a state of Armageddon.

Homeownership is still the American dream. In some areas, it has always been a good time to buy; in others, real opportunities for bargains exist. In all areas, most people can still get a mortgage. It is time to redouble our efforts to get that message out to consumers and to the media both nationally and in our hometowns.

Ken Trepeta is director of Real Estate Services for the National Association of Realtors®.