Real Estate Report – Spring 2010

April 6th, 2010 by Daniel Lee

Time is ripe to buy.

In spring 2010, housing market indicators suggest that it is a good time to buy. The median home price is substantially lower than its peak in 2008 despite recent increases. Together with historically low mortgage rates, low prices make homes more affordable than ever in recent years. In fact, the Housing Affordability Index currently is higher than any point since 1999. In addition, the price-to-rent ratio fell back to the normal levels and is the lowest since 2002, suggesting that the bubble built up during 2000’s have been deflated. Stabilizing labor market should also have a positive effect on the local real estate market. However, it remains to be seen how the housing market will perform after the home buyer tax credit expires in April. It is too early to be overly optimistic about the future prospect of housing market, particularly because the number of foreclosures still remains at high levels.

At the state level, a similar pattern is observed. Median home price is substantially lower than its peak in 2006 and back to levels not seen since 2001. With mortgage rates at historically low levels, homes have recently been more affordable than ever since 1998 when the Index starts keeping track of home affordability. The price-to-rent ratio also fell to a level lower than any point since 2000. Improving labor market is another encouraging sign. However, the recent stabilization in the market is largely contributed by the home buyer tax credit, which expires in April. It remains to be seen whether the revitalizing real estate market is strong enough to continue rebounding after April without helping hands from the federal government.

 

t1_indicators

Median Home Price

It is a widely used indictor of home prices. But a caution is necessary in its interpretation since a change in median home price can be influenced by a shift to more or less expensive homes sold in the market as opposed to a change in the home price itself.

c1_home price Coos County 

Median home price rose in the first quarter 2010 four quarters in a row. More notably, it is considerably higher than a year ago for a gain of 64%. This year-over-year gain was the largest increase since 1999 and the first increase since the first quarter 2008.

New Hampshire

Median home price inched down in the first quarter 2010 for the second time in the last four quarters. But it was still higher than a year ago.

Home Sales

It tracks the number of homes sold, which include both new and existing homes.

Coos Countyc2_home sales

The number of homes sold, adjusted for seasonal variation, inched down in the first quarter 2010, following two consecutive increases. On a year-over-year basis, it was held steady after increasing four months in a row.

New Hampshire

The number of homes sold, adjusted for seasonal variation, declined in the first quarter 2010, after increasing two quarters in a row. On a year-over-year basis, it advanced two quarters in a row.

Price to Rent Ratio

The price to rent ratio is a popular indicator of the housing bubble. The ratio is calculated by the median home price divided by annual rent. The underlying assumption is that if an increase in home prices were moved by market fundamentals, then rents should increase too. A large increase from the normal ratio indicates a bubble and that home prices will fall.

c3_price to rent ratio Coos County 

The price to rent ratio is back to the 13 year average, suggesting that the recent home price bubbles of the last decade have been deflated.

New Hampshire 

The price to rent ratio is back to the level at the beginning of 2000 when the housing market bubble started.

 

Home Affordability Index

It is modeled after the National Association of Realtors’ Home Affordability Index. It takes into account three variables – the median home price, the effective mortgage rate including fees and charges, and the median family income. As home prices and mortgage rates rise, homes become less affordable and the Index declines. As incomes rise, homes become more affordable and the Index increases. Refer to the NAR for more detail. According to the NAR, the Home Affordability Index indicates whether a typical family can afford a mortgage loan on a typical home. A value of 100 means that a family with the median income has exactly enough income to cover the mortgage on a median-priced home. An increase in the value means homes become more affordable, while a decrease indicates otherwise. It assumes a 20 percent down payment and a qualifying ratio of 25 percent.

Coos Countyc4_home affordability index

HAI fell in the first quarter 2010 four quarters in a row. And it was lower than a year ago. Recent increases in home price are largely responsible for this decline in HAI.

New Hampshire

HAI rose in the first quarter 2010 for the second quarter in a row, but was held steady compared to a year ago.

Employment

Household employment measures the number of working-age adults who have a job. The future prospect of housing market is tied to employment. An increase in the number of people with a job is an encouraging sign.

c5_employmentCoos County

Employment inched up higher in the first quarter 2010, but was still lower compared to a year ago.

New Hampshire

Employment inched up higher in the first quarter 2010, but was still lower compared to a year ago.

 

Technical Notes

  • Real Estate data is obtained from the Northern New England Real Estate Network (NNEREN). All analysis and commentary related to the statistics is that of the authors, and not that of NNEREN.
  • The annual rent and median family income data come from the U.S. Department Housing and Urban Development.
  • The median family income for the current year is estimated by regression.
  • The effective mortgage rate including fees and charges are calculated from the data for the Northeast region published by Freddie Mac.
  • The number of foreclosures is counted from the New Hampshire Registry of Deeds.
  • The county employment data is obtained from the New Hampshire Economic and Labor Market Information Bureau and seasonally adjusted, while the seasonally adjusted state employment data comes from the Bureau of Labor Statistics.

© Copyright 2010: Daniel Lee and Vedran Lelas, College of Business Administration, Plymouth State University.