Jobs buy homes
January 21, 2003
Former NAR economist says employment is trend to watch
By Jessica Swesey
Inman News Freatures
Los Angeles—The creation of jobs is the most important economic factor that affects the housing sector, according to John Tuccillo, former chief economist of the National Association of Realtors.
Tuccillo emphasized that point during a panel discussion here Friday at Inman News' two-day summit on the U.S. housing market. Also on the panel were NAR 2003 President Catherine Whatley and Appraisal Institute President-Elect Alan Hummel.
Tuccillo echoed the conclusion of other summit speakers when he said no bubble exists in today's housing market, but he warned that the outlook for housing isn't entirely rosy. He said it's important to think about what would happen if a change occurred in any of the fundamentals needed for a healthy housing market—supply, demand and interest rates.
"There really isn't a reason for interest rates to go up, but one danger is the federal deficit," he said.
Demand for housing has slowed now that Baby Boomers are settling into what may be their last home purchase, land-use controls have increased and vacant land for home construction is unavailable in such cities as San Francisco, according to Tuccillo.
Consumer confidence also is a key factor.
He said consumers' confidence levels are "nowhere near the bottom," but neither are they "at the top."
The three panelists also discussed the relationship between mortgage defaults and subprime lending, loans created for people who otherwise wouldn't qualify for a mortgage and generally are considered a higher risk for lenders.
Whatley said homeownership opportunities shouldn't be extended without a support system to people who aren't used to being homeowners. She said it's important to educate borrowers about their homeownership "careers" to avoid undue loan risk.
"Subprime (lending) definitely has to be looked at closely, and in some cases cleaned up," said Hummel, who believes the greatest part of this market is the opportunity it presents to low-income families.
Worries about subprime lending are too "drastic," according to Tuccillo, who said job creation is the more important issue and as long as the economy continues to create jobs there shouldn't be a crisis with subprime loans.
Panelists also discussed home buyers' motivations.
Whatley said there are ways to work investment potential in real estate and that tax laws are driving investment in second homes.
An investment in housing can't be likened to an investment in stocks. A housing market slowdown hits first at the upper end, said Tuccillo. But stocks lack that sort of flexibility.
Hummel agreed houses can be used as an investment, but he said, "you don't see people day-trading single-family houses."
A summit attendee asked a question about automated valuation models or AVMs. Whatley said the U.S. Department of Housing and Urban Development's recent move to hold lenders accountable for the quality of the appraisal means lenders should reevaluate whether the AVM is suitable.
She said it's important for borrowers to understand the differences between an AVM and an appraiser visiting the home and suggested borrowers should sign a disclosure statement when the only appraisal is an AVM.
Panel moderator and Inman News Publisher Bradley Inman used an audience response system to ask the attendees whether AVMs should be relied on in the future more, less or the same as they are now. Fifty-one percent said more, 30 percent said less and 18 percent said the same.
Copyright: Inman News Service
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