Real Estate & the Economy

REALTORS® and the U.S. Congress are working together to create vibrant communities in which to live and work. Today’s housing market is more important than ever. The housing market is facing big challenges with soft sales activity, falling home prices and rising foreclosures. Nonetheless, the market can turn around with favorable public policies. The health and revival of the housing market are the key to the overall health of the U.S. economy. REALTORS® continue to promote the policies conducive to homeownership. Consider the facts:

Because the housing market is a vital contributor to economic activity, the current housing market contraction has negatively impacted the broader economy. Existing and new home sales fell 12.8% and 26.5%, respectively, in 2007 following sales declines in 2006. Jobs in the residential construction sector have fallen by 291,000 from peak conditions in 2005. As a result the U.S. economy expanded at a sub-par rate of only 2% in 2007. A further weakening in the housing market has the potential to tip the economy into a recession in 2008.
Despite the slowdown, the housing sector still contributed nearly $2.1 trillion to the national economy in 2007, accounting for 15 percent of overall economic activity. The construction of new homes, value-added contributions of REALTORS®, and mortgage banking activity all directly add to economic output, job creation, and income generation. In addition, commercial real estate, which expanded solidly in 2007, contributed an additional $483 billion to the nation’s economy.
The national median price fell 2% in 2007, its first nationwide decline since the Great Depression. All real estate is local and home prices in two-thirds of the country continued to show positive gains. Despite the decline in the national median home price, housing has provided significant wealth buildup for most U.S. families who have a long-term commitment to homeownership. A typical homeowner would have accumulated $52,600 in housing equity over the past five years. The aggregate housing valuation was $23.2 trillion as of the third quarter 2007. After subtracting the mortgage debt value, U.S. homeowners now have $10.6 trillion accumulated in their housing equity. Consequently, consumer spending has remained surprisingly resilient despite high oil prices and uneven consumer confidence.
The rising delinquency and foreclosure rates are raising concerns. The foreclosure rate on subprime loans with adjustable re-setting rates has been particularly troubling, more than doubling to 6.9% from just two years ago. Abusive lending problems have begun to surface as refinance opportunities dissipate in a stagnant home price environment. Problems can be mitigated by adopting sounder lending standards and raising the loan limit on GSE and FHA loans, which NAR favors. A boost to home sales lowers housing inventory, which in turn, helps strengthen home prices. Higher prices lessen the likelihood of a foreclosure.
Both conforming and government-backed FHA and VA mortgages are widely available at historically low interest rates. With the risky subprime lending out of the picture, FHA will become an ever more important factor in helping to revive the housing market. Measurable gains in FHA market share are anticipated in 2008.
Real estate clearly is America’s greatest tangible asset, touching millions of people in countless ways. Serving as the pillar of our nation’s economy, a recovery in the real estate market will be critical. And, as in the past, the economy will inevitably follow in the direction of the housing market.

Because all real estate is local, market conditions vary greatly by region. In Alabama, for example, home sales are 5% below a year ago. Construction jobs accounted for 5.7% of all jobs in the state and the 21% reduction in housing permits portends a fall in construction jobs in the upcoming months. The foreclosure rate on subprime mortgages with adjustable rates is high at 7.4%, representing an increase of 134% from just two years ago.

~National Association of Realtors, Jan 2008

Happy New Year 2008!!

Local Rochester MN Market Statistics for 2007...

Currently there is 929 residential homes listed in the city of Rochester with an average list price of $237,370. In 2007, 2224 homes sold in the city of Rochester alone, with an average sale price of $195,750.

With all the gloom and doom surrounding the national real estate market, Rochester is in a good position. In 2007, sales were only down only 7% compared to 19% nationally. It is a prime time to get into that new home, with a large inventory of homes to choose from and interest rates still at all time lows, there are some great investment opportunities.

Every real estate market is different, to truly understand the current Rochester MN market and the investment potentials that are out there, contact your Realtor.

Have a wonderful, fun filled 2008! Happy House Hunting!!