Doing more with less has become the new mantra of the Central Ohio housing market. Despite increased 2009 activity in entry-level housing stock, the harsh reality is that the local real estate industry sold less, built less and made less in 2009 than in 2008. But there are signs within the real estate sector that a tentative recovery may be taking hold. Positive gains closing out 2009 and leading into 2010 finally could lay the foundation for the end of a downward-trending market.
Of course, with continued losses through 2009, it takes a rosy outlook to predict a better 2010. Industry leaders acknowledge an improving housing market is inexorably tied to improving economic conditions. There are a lot of "ifs" to consider. Chief among them is if increasing activity can continue once homebuyer tax credits expire, and whether interest rates will begin their inevitable climb upward as the government gets out of the mortgage-backed securities business. More broadly, the recovery depends on if potential homebuyers can hold on to their jobs and get loans in an ever-tightening lending environment.
If the housing market's late 2009 gains can continue alongside an improving economic climate in 2010, it will restore hope not only for improved real estate industry activity, but also for existing homeowners who have felt trapped in their current homes by pricing deflation and a glut of inventory. And that sense of hope will be just as important as any other factor in getting homebuyers at all pricing levels off the sidelines to restore balance and extend recovery from the starter market to move-up and executive housing and beyond.
The Central Ohio housing market ended 2009 down across the board: a decrease of 6.6 percent by dollar volume for resale transactions (according to the Columbus and Central Ohio Multiple Listing Service) and a drop of 20.7 percent for new home sales by dollar volume (according to Binns Real Estate Services Housing Market Report). It was the fourth straight year of decline for new-build single-family home sales, according to the Building Industry Association (BIA) of Central Ohio.
However, things began to level off in 2009. Existing home sales by dollar volume plunged nearly 18 percent in 2008, and new-build transactions, although still down by double digits in 2009, came below a 30 percent year-over-year decline for the first time since 2006, following a four-year record negative of 34 percent down in 2008.
Making an upbeat prediction in the face of the data is difficult, acknowledges Jim Hilz, BIA executive director, rattling off a laundry list of factors the local housing industry can't control. "It's hard for me to predict a better 2010," Hilz says. "There's so many factors that impact an improved housing market-it's credit, it's consumer confidence, the economy and the jobs market improving."
"What's going to impact us going forward is not necessarily the market, because the market's in good shape overall," says Ken Danter, president of Columbus-based real estate research firm The Danter Company. Prior to 2009, he says, "We were concerned with the disparity between listings and sales that just got greater and greater." The ratio of new listings to sold listings declined to under 2:1 in 2009, with new listings dramatically declining since 2007, from nearly 50,000 to 42,831 in 2008 and 39,132 in 2009.
"The wonderful numbers we see, most of them are low-end houses under $200,000," says Barbara Lach, a longtime Central Ohio real estate agent whose practice with Coldwell Banker King Thompson traditionally focuses on higher-end listings. She says those pricier listings, $300,000 and up, are making up much of the current housing market inventory; the higher the price, the longer they are on the market (as long as a year to sell) even though often they're at 80 percent of an already marked-down listing.
Despite ending the year down, existing home sales took off the final four months of 2009-traditionally a slower time for the market. The original November deadline of the $8,000 first-time homebuyer tax credit, coupled with fixed interest rates starting at 5 percent, played a major role in the sustained sales growth, says Sue Lusk-Gleich, 2010 president of the Columbus Board of Realtors and owner of Worthington-based Keller Williams Capital Partners Realty. According to the Columbus Board of Realtors, existing home sales increased 24.3 percent in September-December compared to the same time period in 2008. The average sale price in December increased nearly 5 percent, to $157,130 in 2009 from $149,741 in 2008.
Lusk-Gleich says she expects the extension of the $8,000 tax credit to sustain growth through the first half of the year. Like most real estate professionals, her business took a hit in 2008 "when everything went south in September" with the global economic crisis. "That carried on into 2009 until the tax credit became available," she says.
Lusk-Gleich has lower expectations for a sales bump driven by the $6,500 tax credit added in November's extension of the homebuyer program available to existing homeowners, at least not in the upper spectrums of the market. "I don't think it's impactful enough for the high-end home buyer," she says.
Building Smaller, Cheaper Homes
Demand for starter homes has resulted in explosive growth for Indianapolis-based Westport Homes, says Jack Mautino, Columbus division president. "Our sales are up roughly 85 percent and our closings are up almost 100 percent," Mautino says. "That's been a function of hitting a price point for the first-time buyer, and of us having the opportunity to increase our geographical footprint in Central Ohio."
M/I Homes is focusing on efficiency to increase margin as well as meet consumer demand for starter homes, says Theresa Lynn Collins, area president for the company: Sometimes an efficiently built model will even offer more square footage. M/I announced a companywide loss of $62 million in 2009, compared to a $250 million loss in 2008. In Central Ohio, M/I sold more homes in 2009 than 2008, but had lower dollar volume. "Yes, we built smaller homes, but that's what the consumer demand was," Collins says.
Zenios Michael Zenios, BIA president and president and CEO of Galena-based semicustom home builder 3 Pillar Homes, says he is optimistic 2010 will mark the reentry of move-up buyers into the market as the lower end shores up activity. "The second-time homebuyer has to sell to the first-time homebuyer for them to buy, and we're seeing some of that chain start moving forward," Zenios says. "We have so many guys out on the sidelines right now not jumping in because they're waiting for their house to sell."
Great Loans, Tight Standards
Although historically low interest rates and expanded Federal Home Administration (FHA) loan access have helped support Central Ohio home sales, real estate industry leaders say that tight credit standards are constraining the market. FHA announced in January a planned credit score increase to a minimum of 580 by early summer for eligibility for its 3.5-percent down payment program, and traditional fixed-rate lenders in January were requiring credit scores starting at 700 to secure the best interest rates-with 20 percent down, of course.
Zenios again speaks to the necessity of credit availability at the low end of the market to stimulate higher-end sales: Move-up buyers may want to take advantage of the ability to combine low interest rates with low prices to get a sweet deal on a new home, but they need a buyer who can qualify for a loan first.
It's the Economy
Lusk-Gleich says the Central Ohio housing market is going to have to stand on its own by mid-year once homebuyer tax credits expire and interest rates start climbing following the cessation of government purchase of mortgage-backed securities in March. And she points to the lack of relocation activity among major Central Ohio employers-driven by a lack of hiring-as one of the key factors keeping the upper-tier housing market sluggish.
Employment is also a concern for Zenios. "If you don't feel good about your job, you're not going to get out there and do your due diligence," he says. Adds Lach: "People are not wanting to assume more risk in an unsteady kind of economy."
Brent Wilder is a freelance writer.
Reprinted from theApril 2010 issue of Columbus C.E.O. Copyright © Columbus C.E.O.