BUT BAD NEWS ELSEWHERE MAY SCARE BUYERS
Healthy real estate markets in Kentucky and Midwestern states are being hurt by national news reports of problems in other areas, Lawrence Yun told Lexington Realtors yesterday.
“It’s the coastal markets that are out of whack and, some might say, have a (home price) bubble,” said Yun, the chief economist for the National Association of Realtors.
There is “absolutely zero bubble” in Central Kentucky, and the area’s housing remains remains “very affordable” Ð maybe even “undervalued,” he declared, as his audience applauded.
“Home buyers are being impacted by national news coverage,” Yun said. “People are not entering the market now” because of reports that imply the problems are nationwide.
“All real estate is local,” Yun said, and markets on the coasts are not the same as those in the Midwest.
He urged Realtors to stay informed about problems in other markets so they can respond to customers’ concerns.
Yun said home prices were up about 1 percent nationally in 2006, but they might be down as much as 2 percent this year. Still, he said, that is not a serious drop.
“Home sales in Kentucky are holding up well,” he said, but they probably will drop by “the lower single digits” this year.
Sales of new homes are down 33 percent nationally, and builders are reducing housing starts until inventories are sold, Yun said. That’s “the right adjustment” in a free market.
In the meantime, he said rents are rising and that will prompt more renters to buy houses as soon as they feel confident that their investment will be safe.
Yun also said the national problems with subprime mortgages Ð adjustable rate loans made to buyers with poor credit Ð will continue to push foreclosures up through 2008.
About 9 percent of all outstanding mortgages are subprime, but Yun said they account for 53 percent of all foreclosures.
Kentucky is “slightly above” the national average in foreclosures, he said, but the state has been adding thousands of new jobs every year since the 2002 recession and that should help the state work through its foreclosure problem with little trouble.
Yun said there are many positive indicators about the economy: The weak dollar is boosting exports of Kentucky goods, mortgage rates are at near record lows and the stock market is near its record high, despite ups and downs.
He also said inflation is low, the Federal Reserve is cutting interest rates and there is “a very low probability” of a new recession.
All these indicators will eventually give buyers the confidence to return to the housing market, despite negative national news reports, Yun predicted.