Great Article from Lawrence Yun (Chief Economist, NAR Research)

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The "Local" Forecast
by Lawrence Yun, Chief Economist, NAR Research


This upcoming winter's national weather forecast will be closely monitored. Retailers will be assessing potential sales of warm coats. Utility companies need to anticipate heating fuel usage. Scientists will look at the latest climate and environmental data and debate the pace of the planet’s warming trends.

For most of us "everyday" people, however, the national weather forecast of an average of 46 degrees or 38 degrees is equally as useful – or not. Who cares! We need local weather information.

What a Difference Location Makes!
Real estate works similarly. National housing market trends are important for economists to assess their impact on the national economy. The country’s monetary policy at times is determined in relation to overall national housing market conditions.

However, for the 75 million home owners and millions of home buyers and sellers, the only meaningful information is local market conditions. Home prices have been rising strongly in Utah and large parts of North Carolina. Home sales have been clicking at a near-record pace in Dallas. The Boston market, which had been very soft with falling home prices in the past two years, has begun to show early signs of recovery. Stress signs have been rising in some parts of California, yet the Bay Area – already home to the highest home prices in the country – could experience a nice appreciation due to a strong job market turnaround after the dot-com bust of few years ago. And watch out for Wichita: exceptionally fast local job growth combined with the very affordable home prices will likely result in a “pop” in home price growth in that Kansas metro.

In other words, there are significant local variations in the housing climate. National housing market data can be as meaningless for consumers as national weather data.

Yet, recent discussions of housing market conditions have centered predominantly around national data. The media have been frequently reciting the first national annual price decline since the Great Depression, and then associating current housing market conditions to those back in the 1930s. While that may be factually correct, it is highly misleading for a casual audience as such comparison often neglects to provide proper context.

The Ratings Game
Our forecast calls for about a 1.7-percent decline in the national median price, but this will come on the heels of a more-than- 50-percent rise in home values during the recent market boom. A price decline of 1.7 percent is not very significant in the wider context. And there are a great many local variations in the figures that the media often neglect as well. Why?

The easy answer is viewer and listener ratings. There seems to be a desire to “sensationalize” the news in hopes of retaining an audience in an ever-expanding information age. Fortunately,
time and time again American consumers have proven to be smart (smarter than most media give them credit for perhaps) if given informational choices. Consumers will get tired of spoon-fed “sensationalized” news and will seek out relevant news.

It's Not Just About Money
The fact is that homeownership brings immense benefits over the long-term. Aside from near-certain housing equity gains over a typical holding period of 6 years, homeownership provides a great place to live and raise a family. Homeowners in Providence, Los Angeles, and Houston will attest to the long-term benefits even though they had encountered a volatile market swings some 15 to 20 years ago. In addition, academic studies have demonstrated many social benefits of homeownership such as higher student test scores, higher educational attainment and lifetime income, higher civic participation, higher self-esteem from perceived self-control, and even better health conditions.

It is important to note that the benefits of ownership do not mean that households should be pushed into buying a home if they are not ready to do so or misled into taking out a loan with teaser rate mortgages. Home buying is a serious decision and needs to be examined thoroughly.

It would be shame, nonetheless, if a household that is financially able did not buy a home due to excessive fear in the marketplace brought on by sensationalized national news. And while it would be irresponsible to assign all the blame to the media or try to muzzle it in any way, it is important when looking at housing market conditions that all forms of free speech are embraced – including information from bloggers as well as conversations consumers have with their neighbors, lenders, and even housing industry economists! Consumers will, in the end, discover the facts, and serious buyers will recognize a unique opportunity to own a piece of America: there is a vast inventory of homes to choose from in many local markets and a variety of safe mortgage products at historically low interest rates.

Of course, one of the best sources of information about local real estate markets are the REALTORS® who serve those markets. Though there are more than half million additional REALTORS® in the business today compared to 2000, serious REALTORS® understand the true value-added service they provide their clients. Results from the recently released 2007 NAR Profile of Home Buyers and Sellers show that 87 percent of home buyers and 81 percent of home sellers would use the same real estate agent again or recommend that agent to others.

Serious REALTORS® also understand the need to serve the long-term benefits of home ownership and that all real estate is intensely local. For consumers considering buying or selling a home, there is no one better informed than a local neighborhood REALTOR®.