The signs say there are better days ahead for real estate

A group of movers and shakers and I were sitting in the lounge of a radio station waiting to chat with the longtime host of my area’s only residential real-estate call-in show for his annual “what will the market do” program.

For a lot of these people, 2006 has not been a year to crow about, although the fact that all of them have been selling real estate for 20 or more years means that they have been through any number of up and down markets -- some much more dire than this has turned out to be -- and aren’t ready to call it quits.

That’s not the case with every real estate agent, however. One of the participants said that his office had lost 10 percent of its agents in the last few months, but some had been veterans, close to retirement, who were unwilling to live through another down market and wanted to get out in case things got worse.

Some brokerages have been opening offices, however, and there have been a lot of agents shifting from one to another, especially among the larger entities. Still, all in the room readily acknowledged that there is a much smaller pie these days, and they expected that, at least in the short term, there would be a continued exodus of especially newer agents out of the business.

That’s at least one result of the present slowdown, which has not been shared equally throughout the country. National Association of Realtors chief economist David Lereah said at the November NAR meeting in New Orleans that 76 percent of the nation’s market had avoided the worst of the slowdown and that these would come out of this turn in real estate fortunes virtually unscathed.

Lereah also argued, somewhat convincingly, that while lower sales were a very big problem in light of the increase in listings over the last year, the decline in median prices in a number of especially higher-priced markets boosts affordability, and that should do wonders for reducing inventory.

Already sellers have been getting the message that now is probably not the time to list, and that, as well as some bump ups in sales over the last few weeks in many markets, is chipping away at inventory.

There seems to be major differences among economists about whether we’ve reached bottom or are close to it. The housing industry economists seem to be saying yes; the academics generally believe that we still have a while to go.

We have a lot of positives in place that will help keep the market solid when supply and demand reach equilibrium -- well, you always want demand to be slightly greater than the supply so that prices will rise but not more than will shut too many first-time buyers out of the market, creating a carbon copy of the present situation in a lot of markets around the country.

One is continued low long-term interest rates. Thirty-year fixed rates have been well under what many economists had predicted, and right now in many markets a buyer with 20 percent down can pick up a fixed rate of 5.75 percent with no points. Add the low rates to steady or falling home prices and you’ve begun to solve the issue of affordability -- maybe not in San Francisco but in many other areas that have not been historically as pricey.

Another positive has been the passage of changes in the tax code by the U.S. House that, if the Senate follows suit before it adjourns, will mean that homeowners will be able to deduct mortgage insurance premiums.

Such a deduction has long been advocated by the Mortgage Insurance Companies of America because, as John Berthoud, president of the National Taxpayers Union put it, “Finally, homeowners will have the ability to make all the costs associated with the ongoing financing of their home truly tax deductible.”

“Homeownership contributes substantially to social stability,” said Bruce Hahn, President and CEO of the American Homeowners Grassroots Alliance. “Yet homeownership remains just beyond the grasp of millions of Americans. Making the cost of mortgage insurance tax deductible helps put homeownership within reach for many more families.”

If the Senate passes the tax-code changes, borrowers closing loans to purchase homes in 2007 who have annual household incomes of $100,000 or less will be able to get a low down payment mortgage and deduct the full cost of their mortgage insurance premiums on their federal tax return.

That certainly will increase affordability, as will decreases in closing costs associated with downward adjustment of median sale prices.

So are we over the real estate hump? Probably not quite yet, but everything seems to be heading in the right direction toward better times.