Navigating Out of the Bottom
Summit Speakers Declare Recession Mostly Over But
Say Federal Aid Still Needed to Help Industry, Nation Climb Out
By Ann Gutkin, NVAR Public & Government Affairs Specialist
All but declaring “the end of this country’s great recession” was the recurring theme among experts addressing members, legislators and reporters at George Mason University on September 23 for NVAR’s 13th Annual Economic Summit. Analysts will one day look back and mark this recession’s end at June, 2009, according to Dr. Stephen Fuller, Director of GMU’s Center for Regional Analysis and the co-sponsor of the event.
“The recession is over, but it is not going to be fun for the next couple of years,” advised Dr. Michael Fratantoni, Vice President, Single-Family Research & Policy Development with the Mortgage Bankers Association. Citing current trends in lending and un underwriting, Fratantoni noted that “still more tightening than loosening” is to come in the underwriting process. He predicted a resulting “binding constraint once demand picks up.” This could leave some potential home buyers out of the market.
Delinquencies continue to plague the lending community but are “changing from a problem of weak credit buyers and subprime loans to a macroeconomic problem, which won’t go away until the labor market heals,” Fratantoni explained. Virginia has fared better than Maryland and the District of Columbia, and the entire region has fewer delinquencies than the U.S. overall, he noted.
Default management has become big business for the nation’s lending institutions. Allen Jones, Bank of America’s Executive of Default Management Public Policy & Outreach, reported 80,000 consumer calls daily to his organization on this issue, with a staff of 11,000 devoted to the Bank of America call center.
Chief Freddie Mac Economist, Dr. Frank Nothaft acknowledged that federal involvement is key to recovery. “The Making Home Affordable program is an important component to help stabilize local housing prices and markets to keep as many people as possible in their homes.” For eligible loans, the program offers streamlined refinancing to lower interest rates for four to five million borrowers. It has also directed $75 billion in federal funds to mortgage modifications, he stated.
A continuing weakness in the housing market is contributing to the difficult macroeconomic environment, Fratantoni noted. The recovery of the housing market is integral to overall economic improvement said Dr. Lawrence Yun, The National Association of Realtors’® Chief Economist, noting that each sale of a home immediately injects $62,000 into the economy.
Yun credited the $8,000 first-time homebuyer tax credit with bringing buyers back into the housing market, claiming that it helped unleash some of the pessimism in the market. “When the fear factor disappears, people will buy based on normal considerations, such as the need for a bigger home,” he said. Yun expressed hope that
Congress would extend the tax credit, which would lead to a self-sustaining recovery.
“Extending the tax credit has my full support,” said Congressman Gerry Connolly (VA-11), while acknowledging that the problem is finding funds to continue the program. “Real estate sort of helped start this recession,” Connolly said. “If we’re to have a meaningful recovery, real estate should be part of the solution.” Echoing Treasury Secretary Ben Bernanke’s belief in the success of the federal stimulus program, Connolly said he thinks this program is paying off.
Agreeing that federal guidance was needed, Nothaft said, “The Federal Reserve and the Treasury Department have played a critical role in bringing down the mortgage rates through the purchase of mortgage-backed securities.”
In this region, Northern Virginia will recover first, according to Fuller, due in part to a greater amount of “entrepreneurial juice.” Like the rest of the country, this region has lost jobs, but “nobody has done a better job than we have [in minimizing unemployment],” Fuller said. “The jobs we add will be different from those lost,” Fuller explained, noting that they would be filled by new people coming into the workforce in this region – a population likely to become home buyers.
With favorable interest rates, a strong local economy and a stabilizing housing market, Northern Virginia Realtors® are well positioned to ride out the anticipated, incremental recovery.