by Carl Horst

The nation's top real estate economist gave Ohio's REALTORS a sobering overview of the economic climate, but offered hope for a turnaround to the housing market by year-end during a presentation at the Ohio Association of REALTORS Winter Conference in early January.

The industry, hampered by difficult economic conditions, dampened consumer confidence and declining housing valuation, is weathering the current downturn and focusing on programs designed to reinvigorate the housing sector, Lawrence Yun, chief economist for the National Association of REALTORS, told a packed room of industry leaders.

With the nation's economy currently mired in a recession, housing will play a key role in any recovery effort, he noted. "The depth of the recession is dependent upon whether we have a housing market recovery."

Yun pointed to a number of economic indicators--from declining consumption, to consumer confidence that has dropped nearly 50 points in the past eight years, to a stock market that has lost $8 trillion in value from its peak two years ago--as factors for the recession.

"As a result, the nation's housing valuation has experienced a $2 trillion loss in wealth from its peak (during the third quarter 2007)," Yun said.

Add in job losses nationally and in Ohio since 2007 and the current recession is unique when compared to previous economic downturns.

"A recession's impact on the housing market varies," he said. In the mid-1970s there was little change in home sales during a recession, while the early 1980s recession triggered deep cuts in sales. "Most recently, during the early 1990s recession we had moderate cuts in sales and in the early 2000s home sales rose."

A contributing factor in pushing sales and prices down in the current market is the fact that "things were out of whack at the height of the recent boom." According to NAR statistics, home prices from 1998 to 2006 jumped 64 percent. However, factoring in the past two years, the jump in median price is up 45 percent (from 1998 to 2008).

The good news is that interest rates are much more favorable today, Yun said.

"A 30-year fixed mortgage rate in 1998 was around 7 percent with a 1 percent fee. In 2008 it was around 6 percent with a 0.5 percent fee. The big question is whether we have similar underwriting standards now as we did in 1998."

Yun noted that Ohio's existing home sales in 2008 will retreat to 2001 levels. Additionally, the state's new construction dropped dramatically last year to the lowest level since prior to 1984. With foreclosures spiking in 2008, inventory of new and existing homes swelled.

As such, NAR has been advocating passage of a housing stimulus package on Capitol Hill to bring buyers back into the market and absorb the inventory. Among NAR's key messages to lawmakers:

-- Approve a first-time homebuyer tax credit without a repayment component;

-- Passage of an interest rate buy-down, with fixed low rates for homebuyers with government subsidizing rates;

-- Permanently increase loan limits (up to $729,000) which will bring down rates on conforming jumbo loans and positively impact some of the nation's high cost markets.

The fear is that consumer spending will further constrict during to the negative wealth effect and that home prices will fall as the result of ongoing foreclosure problems and mortgage credit loss. Yun cautioned against "self-reinforcing pessimism--buyers sitting on the fence, inventory building, prices fall, foreclosures rising.

"The stimulus plan and falling inventory will help stabilize (home) prices," Yun said.

Additionally, he expects price growth in many markets as the economy strengthens and jobs stabilize.