review of regional market conditions and trends

8/14/2019 Review of Regional Market Conditions and Trends

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Virginia Housing Development Authority

Review of Regional Market

Conditions and Trends

Charlottesville Area Association of RealtorsFebruary 4, 2010



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The Charlottesville area

housing market hasbegun a slow recovery



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Home sales hit bottom in the 3rd Quarter,

but remain below the level of a decade ago

Source: VAR

Existing Home SalesCharlottesville Area

300

600

900

1,200

1,500

9 9 - 2

9 9 - 4

0 0 - 2

0 0 - 4

0 1 - 2

0 1 - 4

0 2 - 2

0 2 - 4

0 3 - 2

0 3 - 4

0 4 - 2

0 4 - 4

0 5 - 2

0 5 - 4

0 6 - 2

0 6 - 4

0 7 - 2

0 7 - 4

0 8 - 2

0 8 - 4

0 9 - 2

0 9 - 4

'99-4

656

'06-2

1,173

- 45%

Four-Quarter

Rolling Average

'09-4

641



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The Charlottesville market continues

to track other “downstate” markets

Source: VAR

Existing Home Sales Index

25

100

175

0 3 - 1 0 3

- 2 0 3

- 3 0 3

- 4 0 4

- 1 0 4

- 2 0 4

- 3 0 4

- 4 0 5

- 1 0 5

- 2 0 5

- 3 0 5

- 4 0 6

- 1 0 6

- 2 0 6

- 3 0 6

- 4 0 7

- 1 0 7

- 2 0 7

- 3 0 7

- 4 0 8

- 1 0 8

- 2 0 8

- 3 0 8

- 4 0 9

- 1 0 9

- 2 0 9

- 3 0 9

- 4

I n d e x ( 1 s t Q t r 2 0 0 3 =

1 0 0 )

b a s e d o n 4 - q u a r t e r r o l l i n g a v e r a g e

Charlottesville-Central Valle y Northern Tier (PDs 7, 8, 9 & 16) Greater Richmond

Greater Hampton Rds Roanoke-Blacksburg-Lynchburg




Four things are needed

in order to achieve sustainedhousing market growth:

1. Recovery of employment

2. Stabilization of home prices

3. Reduction in mortgage defaults

4. Revival of a stable privatemortgage market




Employment




Unemployment is up sharply, but

is well below rates in most markets

Source: Bureau of Labor Statistics and Virginia Employment Commission

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

Washington MSA (VA part)

Charlottesville MSA

Virginia

Staunton-Waynesboro MSA

Richmond MSA

Culpeper MSA

U.S.

Dec 2007 Dec 2009

Unemployment Rates

Charlottesville MSA

Virginia

U.S.




Weak employment will likely

remain a significant market drag

• Area employment is stabilized by large public

and agricultural sectors, and a lower share of

manufacturing jobs than in other markets.• However, employment and income levels

could suffer from prolonged state and local

fiscal distress.

• The losses in employment and income have

been steep and will take time to recoup.




The recovery in jobs will take longer

than in all but the 2001 recession

Data for the 2007 recession is through Nov 2009




Home Prices




Price changes generally lag

behind changes in sales volume

Source: MRIS

Example: Prince William Market Area

$

$,

$,

$,

$,

$,

O c t - 9 9

A p r - 0

0

O c t

- 0 0

A p r - 0

1

O c t

- 0 1

A p r - 0

2

O c t

- 0 2

A p r - 0

3

O c t

- 0 3

A p r - 0

4

O c t

- 0 4

A p r - 0 5

O c t

- 0 5

A p r - 0

6

O c t

- 0 6

A p r - 0 7

O c t

- 0 7

A p r - 0

8

O c t

- 0 8

A p r - 0

9

O c t

- 0 9

M e

d i a n E x i s t i n g H o m e

P r i c e

0

300

600

900

1,200

1,500

E xi s t i n gH om e S al e s

( 1 2 -m on t h r ol l i n g av er a g e )

25 months

Home Sales

Home Prices

14 months




Unsold inventory must first decline

in order to put a floor under prices

Source: MRIS

Example: Prince William Market Area

-50%

-25%

0%

25%

50%

O c t - 0

3

A p r - 0

4

O c t - 0

4

A p r - 0 5

O c t - 0

5

A p r - 0 6

O c t - 0

6

A p r - 0 7

O c t - 0

7

A p r - 0 8

O c t - 0

8

A p r - 0 9

O c t - 0

9

-20

-10

0

10

20Months of

Unsold Inventory

Annual Change

in Median Price



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The Charlottesville area’s unsold inventory

is still large and must decline further

in order for home prices to stabilize

Source: Federal Housing Finance Agency (FHFA)

Annual Change in FHFA Existing Home Price IndexCharlottesville MSA

-5%

0%

5%

10%

15%

20%

2 0 0 1

- 1

2 0 0 1

- 3

2 0 0 2

- 1

2 0 0 2

- 3

2 0 0 3

- 1

2 0 0 3

- 3

2 0 0 4

- 1

2 0 0 4

- 3

2 0 0 5

- 1

2 0 0 5

- 3

2 0 0 6

- 1

2 0 0 6

- 3

2 0 0 7

- 1

2 0 0 7

- 3

2 0 0 8

- 1

2 0 0 8

- 3

2 0 0 9

- 1

2 0 0 9

- 3

Calendar Year Quarter




In the Northern Tier, the reduction in

unsold inventory has occurred in two ways

Source: MRIS / data reflect 12-month rolling averages

Example #2: Greater Piedmont Are

Sales volume remains weak,

with inventory reduction mostl

due to falling listings

50

125

200

275

350

425

500

575

D e c - 9 9

D e c - 0 0

D e c - 0 1

D e c - 0 2

D e c - 0 3

D e c - 0 4

D e c - 0 5

D e c - 0 6

D e c - 0 7

D e c - 0 8

D e c - 0 9

Existing Home Sale

New Listings

Example #1: Prince William Area

Rising sales and falling listing

have played equal parts in

reducing the unsold inventor

250

500

750

1,000

1,250

1,500

1,750

2,000

D e c - 9 9

D e c - 0 0

D e c - 0 1

D e c - 0 2

D e c - 0 3

D e c - 0 4

D e c - 0 5

D e c - 0 6

D e c - 0 7

D e c - 0 8

D e c - 0 9

New Listings

Existing Home Sale




Increased affordability is still needed in

Charlottesville to sustain increased sales

• In the Northern Tier—

especially in Pr. William—

price declines have

returned affordability topre-boom levels.

• Downstate, prices are still

correcting (chart), with

Charlottesville pricesremaining most out-of-line

with affordability norms.

Source: VAR and Census Bureau

Ratio of Median Home Price toMedian Household Income

0.0 1.0 2.0 3.0 4.0 5.0 6.0

Danville

Lynchburg

Roanoke

Richmond

Hampton Rds

Charlottesville

Pre-Boom:April 2000

Peak of Boom:June 2007

Post Boom:4th Quarter 2009

Charlottesville

Historic affordability

threshold




Home prices continue to face

several major headwinds

• Tightened credit and down payment requirementsoffset declining sales prices.

• During the boom, rising prices in the adjacent andmuch larger Northern Tier and Greater Richmond

markets supported price inflation in Charlottesville.• Now the substantial inventory of distressed homes

in the Northern Tier and economic weakness inGreater Richmond undercut the area’s ability tosustain higher values.

• The federal tax credit has put a floor under salesand prices, but has not generated a strong enoughmarket rebound to fully offset the strong foreclosureand economic undertows.




Mortgage Defaults




Area foreclosures are rising,

but remain relatively low

Source: RealtyTrac and Census Bureau

Trustee Auction Notices

0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 1.50% 1.75% 2.00%


Charlottesville MSA

Richmond MSA

Virginia

Washington-Arlington-

Alexandria MSA (VA part)

Culpeper MSA

Share of Homes with a Mortgage

Feb 2010

Aug 2009Charlottesville MSA

Virginia




Rising area foreclosures have not

created a large “distressed” inventory

Source: RealtyTrac and Census Bureau

Inventory of Bank-owned Homes

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%


Charlottesville MSA

Richmond MSA

Virginia

Washington-Arlington-

Alexandria MSA (VA part)

Culpeper MSA

Share of Homes with a Mortgage

Feb 2010

Aug 2009Charlottesville MSA

Virginia




Lower area foreclosures are the

result of fewer high-risk loans

Source: 1st American CoreLogic and Census Bureau

Subprime & Alt-A Share of Home MortgVirginia Metropolitan Areas

0% 5% 10% 15% 20%

Blacksburg-Christiansburg-Radford

Kingsport-Bristol (VA pt.)

Harrisonburg

Charlottesville

Lynchburg

Danville

Roanoke

Washington-Arlington-Alexandria (VA pt.)

Richmond

Winchester (VA pt.)

VA Beach-Norfolk-Newport News (VA pt.)

Culpeper Micropolitan Areas

Charlottesvill




The recession was triggered by foreclosures

on high risk loans, but now unemployment

is driving a new wave of mortgage defaults

Source: Mortgage Bankers Association (MBA)

Subprime Foreclosures

Prime & Govt. ARM Foreclosures

Prime & Govt. Fixed Rate Foreclosures + 6,400

Virginia Foreclosures

Change 2008 to 2009

- 500

+ 3,800

3rd Qtr. 200930,500 Active Foreclosures

35%

30%

35% Prime &Govt. Fixed

Rate Loans

10,700

Prime & Govt.

Adjustable

Rate Loans

9,300

Subprime &

Alt-A Loans

10,600

3rd Qtr. 200820,900 Active Foreclosures

21%

26%

53%

Prime &

Govt. Fixed

Rate Loans

4,300

Prime & Govt.

Adjustable

Rate Loans

,

Subprime &

Alt-A Loans

11,100




In the past, delinquency was driven

by job losses, and lagged recovery

Source: Mortgage Bankers Association (MBA) and Virginia Employment Commission (VEC)

Experience of Last Major Recession in Early 1990's

.%

.%

.%

.%

.%

1 9 9 0

- 1

1 9 9 0

- 2

1 9 9 0

- 3

1 9 9 0

- 4

1 9 9 1

- 1

1 9 9 1

- 2

1 9 9 1

- 3

1 9 9 1

- 4

1 9 9 2

- 1

1 9 9 2

- 2

1 9 9 2

- 3

1 9 9 2

- 4

1 9 9 3

- 1

1 9 9 3

- 2

1 9 9 3

- 3

1 9 9 3

- 4

1 9 9 4

- 1

1 9 9 4

- 2

1 9 9 4

- 3

1 9 9 4

- 4

Calendar Year Quarter

S e r i o u s D e l i n q u e n c y R a t e

( 4 - q u a r t e r r o l l i n g a v e r

a g e )

3.0%

4.0%

5.0%

6.0%

7.0%

Un em pl o ym en t R a t e

( 4 - q

u ar t er r ol l i n g av er a g e )

Serious Delinquencies

Unemployment

15 months

Peak in

3rd Quarter 1992

Peak in

4th Quarter 1993




This time, defaults led job losses, but

are still likely to trail a jobs recovery

Source: Mortgage Bankers Association (MBA) and Virginia Employment Commission (VEC)

Current Recession

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2 0 0 5

- 1

2 0 0 5

- 2

2 0 0 5

- 3

2 0 0 5

- 4

2 0 0 6

- 1

2 0 0 6

- 2

2 0 0 6

- 3

2 0 0 6

- 4

2 0 0 7

- 1

2 0 0 7

- 2

2 0 0 7

- 3

2 0 0 7

- 4

2 0 0 8

- 1

2 0 0 8

- 2

2 0 0 8

- 3

2 0 0 8

- 4

2 0 0 9

- 1

2 0 0 9

- 2

2 0 0 9

- 3

2 0 0 9

- 4

Calender Year Quarter

S e r i o u s D e l i n q u e n c

y R a t e

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Un em pl o ym en t R a t e

S

e a s on al l yA d j u s t e d

Serious Delinquencies

Unemployment




The wave of sub-prime resets is over,

but “option ARMs” are now at risk

Source: Loan Performance, Amherst Securities




A large majority of “option ARMs”

is substantially “under water”

Source: Loan Performance, Amherst Securities

Balance Distribution (by CLTV), January 2010




Problem loans, depressed prices and

unemployment will keep defaults high

• “Option ARM” loans pose major risk of loss. Loan

resets could generate “strategic” defaults that

would destabilize weak local markets.

• Distressed properties and tightened credit

standards continue to depress values, and keep

a large share of mortgages “under water.”

• Now, unemployment is driving growing numbersof homeowners into default, especially those

who are under water and cannot sell.




Mortgage Markets




The mortgage market remains

highly reliant on federal intervention

• The private mortgage-backed securities marketremains dysfunctional, with access to affordablecapital still dominated by governmental entities(the GSE’s and Ginnie Mae).

• Non-conforming / non-government loans—especially jumbo mortgages—still pay premium prices.

• The federal government continues to stimulate the

market with historically low rates and tax credits.• However, two competing goals are being balanced—

1) stimulus to the market & homeowner debt relief versus 2) reduction in losses to FHA and the GSEs.




The stimulus tax credit is only partially

offsetting the impact of tighter credit

• Minimum credit scores, tighter lending ratios and risk-based pricing—including higher mortgage insurancepremiums—are reducing the pool of first-time buyers.

• VHDA is continuing to provide a flow of flexible capital

through Ginnie Mae securitization and the sale of tax-exempt housing bonds to the GSEs through theTreasury’s bond support initiative.

• Our “Homebuyer Tax Credit Plus” and “FHA Plus”programs are providing needed down payment

assistance.• VHDA and other state housing finance agencies are

working with FHA to preserve flexible lendingstandards while addressing the need for prudent riskmanagement.




In 2010, there are four challenges in

weaning the market off federal support

1. Maintaining a delicate balance betweenmarket stimulus and curtailment of credit risk

2. Modifying distressed but viable loans on asustainable basis that does not merelypostpone lender losses

3. Containing “strategic” defaults

4. Enabling private capital markets to restartwithout creating credit shortfalls and/or aspike in mortgage rates




2010 brings major unresolved questions

as federal industry reform gets underway

– What impact will new federal regulatory

structures have on the availability and

affordability of mortgage financing?

– Can the private MBS and PMI markets

achieve sustained recovery?

–What is the future of Fannie Mae andFreddie Mac?

– How large a role can and should FHA play?




What is the market outlook?




The Charlottesville area market is likely

to remain weak in 2010 and into 2011

• Home sales, while rising, are likely to remain below

the pre-boom levels of the first half of this decade.

• Prices will remain depressed until inventories arefurther reduced and the foreclosure rate declines.

• The ongoing severity of loan defaults will depend on

how much further unemployment rises, how long

before jobs growth returns, and the magnitude of further price declines.




Longer-term prospects for the

Charlottesville market are bright

• The local economy is strong and poised for growth.

• The region is projected to experience balanceddemographic growth—

– Household growth will be much stronger than in southernand western parts of the state with less severe impact of “graying” on growth as the population ages

– Nor will the region experience the growth challenges facedby the Northern Tier.

• Nonetheless, the market will experience fundamentaldemographic shifts with demand looking verydifferent from the recently ended “trade-up” boom.




Market demand will be dominated by

first-time buyers and early retirees

Source: VEC and Census Bureau

Projected Change in Adult Population by Age, 2005-2Charlottesville-Central Valley

209

4,266

7,169

2,573

267

-3,233

-516

4,809

10,217 10,285

8,687

3,726

1,811

4,521

20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85+

Age Group

Young Renters &

1st-Time Homebuyer

Middle Age

Trade-up Homebuyers

Empty Nester & Younger

Senior Homeowners

Older Seniors

with Special Needs



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Recovery depends as much on

federal actions as on traditional

demographic and economic drivers

• The federal restructuring of the mortgage market will

reset the playing field for who can obtain mortgage

credit and under what terms and conditions.• In turn, this will drive who enters the home purchase

market and the type of home they choose to buy.

• Over the next decade, these changes, coupled with a

generational shift in demographic market drivers, willfundamentally alter the housing market as we have

come to know it.

review of regional market conditions and trends

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