real estate review
By Ethan C. Nobles, director of media relations for Arkansas Realtors Association
Over the past year, we at the Arkansas Realtors Association have heard one question quite a bit – “when will the housing market improve?”
We’re not in the habit of guessing when the housing markets will improve simply because a good number of unprecedented events have happened and more may be in the works. For example, who could have predicted that the Federal Reserve would purchase $500 billion in mortgage backed securities backed by Fannie Mae and Freddie Mac?
A lot of people speculated that would happen, but no one could say for sure if it would happen until the decision was announced the day after Thanksgiving. Due to that purchase, mortgage backed securities attracted investors again and mortgage rates dropped to record lows in response. Those low rates, of course, prompted some people to buy homes or refinance the ones they already own.
Another event that couldn’t be accurately forecasted was how mortgage companies would react to foreclosures. As it turns out, those companies voluntarily prevented close to 3 million foreclosures in 2007 and 2008. It seems that mortgage companies have little interest in liquidating a bunch of houses, particularly since they almost always lose money when they foreclose on homes and have to sell them.
Here’s another event that couldn’t be predicted until it happened. Last year, the federal government offered a $7,500 tax credit to all first time homebuyers. The National Association of Realtors® (NAR) had, this year, asked to double that tax credit, offer it to all homebuyers and eliminate the prepayment provisions of the earlier credit.
Under the $787 billion stimulus package that was signed into law by President Barack Obama, a compromise was reached under which an $8,000 tax credit will be offered to first time homeowners. It’s worth mentioning that a first time homebuyer, under federal law, is someone who hasn’t owned a principal residence within the past three years.
Furthermore, the tax credit is phased out for individuals with an income over $75,000 per year and couples with combined incomes over $150,000. The repayment provision in the earlier tax credit has been eliminated and the credit can be claimed by people purchasing homes before Dec. 10.
It’s hard to say what impact that new tax credit will have on homes sales in Arkansas, but the NAR has predicted the new law will result in 300,000 more home sales around the nation.
During the same week Obama signed the stimulus package into law, he announced a measure to help millions of homeowners at risk of foreclosure. The $75 billion Homeowner Affordability and Stability Plan would help struggling homeowners by providing incentives to lenders, servicers, mortgage holders and borrowers to help modify mortgage loans.
At the time of this writing, the U.S. Treasury Department has yet to issue guidelines regarding the plan, but it is expected that financial institutions receiving federal assistance must agree to follow the guidelines. The NAR projects that the Homeowner Affordability and Stability Plan, along with the $8,000 tax credit, will combine to help reduce housing inventories, minimize foreclosures and stabilize housing values.
What will the impact of those programs be in Arkansas? Certainly, they’ll benefit markets throughout the state, but it’s next to impossible to predict just how much things will improve.
To make predictions even more difficult, we’ve got housing markets throughout Arkansas that are amazingly unique. For example, average sales prices dropped by close to 2 percent in Arkansas last year, but were up 2.7 percent in Craighead County. Similarly, sales were down 18.2 percent throughout Arkansas, but dropped only 7.6 percent in Craighead County last year.
Meanwhile, housing inventories tended to grow in many Arkansas markets but remained constant in Craighead County – a sign of a market that is doing well.
Considering how Craighead County has, by and large, held up over the past year, how much impact will the recent and upcoming measures to stabilize markets around the nation impact markets in the Jonesboro area?
With as many variables that could potentially impact housing markets in Arkansas out there, it’s difficult to accurately predict when things will improve here in the Natural State or in local areas such as Craighead County. One thing is for sure, however – housing markets always rebound in Arkansas in time. The question, then, is when – not if – that will happen in Arkansas.