Reflections on the Housing Market

As I’m cleaning up the mess in the kitchen that my husband’s left for me after one of his cooking endeavors, I’m wondering why he isn’t more careful while preparing meals. I’m very grateful that he has taken over much of the cooking chores over the last few years and I truly enjoy his tasty meals, but he just isn’t focused on minimizing the aftermath. Then it dawns on me that since we have an agreement that I will clean up after he cooks, he simply has no incentive to be less messy. And that brings my thoughts to our protracted recovery from the housing collapse of several years ago. Homebuyer friendly government policies combined with a mortgage lending process that increasingly disconnected loan underwriting from loan risk, many mortgage loans were approved in a manner like my husband cooks. Loan originators and underwriters did a very good job at getting loans approved but became more and more removed from the consequences of those loans defaulting since the financial risks were offloaded to someone else.
But what’s done is done. Our government has taken actions to tighten up the mortgage lending process and to increase regulation in the financial markets. Attempts have been made to ensure that appraisals are more objectively prepared and credit hurdles have been raised. While these new regulations may prevent a future housing crisis, only time will tell what the impact will be on future growth in the housing market. At the same time our government has also tried, with limited success, to ease the housing market’s transition to these new standards by providing distressed homeowners assistance in keeping their homes, 1st time buyers’ tax credits on the purchase of a home, and long time existing homeowners tax credits in buying a different home.
All of this has come at a significant cost. Bailouts of financial institutions and subsidizing the housing industry through tax credits have been very costly and have increased our national debt. At the same time, loss of confidence in our economic future has eroded the wealth of our fellow citizens as interest on savings is at an all time low and the stock market has yet to come close to regaining lost ground.
As I review my own business over the last couple of years, I’m reminded how the above events have affected the nature of my work. For example, more of my buyers have been investors in rental properties, and I’ve had an increase in clients either trying to lease out their properties or looking for properties to lease. I suppose it is only logical that massive foreclosures combined with tightened lending practices would result in a number of owner occupied properties turning into lessee occupied properties.
Analysis of historic HAR MLS statistical data for Montgomery County tells me that my experience is echoed throughout our market. As I look over the statistics, I notice that 4 years ago, about 1 in 5 closed real estate transactions on single family residences and condos was a lease contract while 4 in 5 were sales contracts. Most currently, about 1 in 3 closed transactions are leases. The significant change is due to lease transactions increasing almost 20% and sale transactions decreasing over 25%.
Of course, everyone wonders when the real estate market will recover, if ever. Unfortunately no one knows, as there are just too many moving parts. But we do know that in Montgomery County, we have a fairly good economic environment and a great quality of life, so I remain cautiously optimistic. Meanwhile, if anyone can think of a way to make my husband a tidier chef, please let me know. Perhaps more regulation?