After being decimated by the recession, the housing market in NH appears to be finally stabilizing, and experts say it's time people gave their expectations a reality check. Dennis Delay, an economist with the NH Center for Public Policy Studies in Concord, contends that the total value of real estate in NH has not dropped as significantly as everyone perceives. He says that recovery is on the horizon, though it may take a year or two to get back to business as usual.
The total value of property in the state in 2007 was $173.6 billion and for 2010 it is $166 billion, and yes that is a drop that was felt by everyone, he says. But when you look at the fact that home values increased at a record rate for several years to form this bubble that was bound to burst, it is not as bad as we think. It took time to get here and it will take time to recover.
Delay points out that home values in states hardest hit by the recession dropped more than 50 percent in market value and NH is not in the same crisis. He notes also that the state has one of the lowest unemployment rates in the country, an indicator of economic health that is also good news for the real estate market. In April, the state's unemployment rate dropped to its lowest point in two-and-a-half years landing at 4.9 percent, well below the national average of 9 percent.
Delay says the state is poised for recovery, but the question is when it will happen. If you look at the [NH] statistics this year, housing sales and prices are down from last year. We are still picking up the pieces from the burst bubble, he says. People here are cautious and for the last three years they [have been] just sitting on the sidelines waiting to see what happens next.
Peter Francese, demographer and columnist for the NH Association of Realtors, agrees that the state is poised for recovery, saying that home values are basically holding steady. He says the housing market collapse was necessary and equates to about a 20 percent drop in NH home values since the market peak.
I analyze what is the value of the average house versus the ability of the average person to buy it. And things were completely out of whack back in 2005 to 2006, Francese says. We are back now to where we were in the 1990s with a balanced ratio of the median household income versus the median home price. If things are balanced they are unlikely to fall. Francese goes as far as to say that he sees no earthly reason that home values will drop further, but recovery, he says, is being held back by a lack of consumer confidence.
People are asking themselves if this is the bottom...if home values will drop further. So everyone is just waiting, Francese says. And they are not experts, so they look to the national news, which does not take into account that our state's market is different.
One of the ways that NH differs, according to Francese, is it ranks third in the nation in the percentage of second home ownership, trailing only Maine and Vermont respectively. Approximately 60,000 properties in the state, he says, are second homes.
With a robust second home market, home values traditionally tend to hold up, which is another reason the state endured so well, Francese says. Overall the home values are indicating they are holding and even rising a small amount in some counties, which indicates a pivotal change.
Margherita Verani, a 39-year real estate veteran and president and owner of Prudential Verani Realty in Londonderry, says realtors are seeing stabilization. Home values are basically holding steady and in many cases, when the property is priced aggressively, we are seeing multiple offers being presented, she says. This is something we have not seen in several years.
Forget Last Year
According to reports from the NH Association of Realtors (NHAR), the second quarter of this year got off to a bumpy start with 809 homes sold in April at a median price of $199,900-both declines from the same period in 2010. There were 951 sales in May-a 10 percent drop from the 1,057 sales in May 2010-and the median sale price dropped 5 percent from $220,000 to $210,000 between May 2010 and 2011.
However, the NHAR contends the 2010 market was inflated because of the imminent expiration of the homebuyer tax credit. A year ago, contracts had to be signed by April 30 in order for buyers to qualify for the $8,000 tax credit, and closings on those contracts continued through May and June, spiking the sales and median price data for those months, according to NHAR President Tom Riley.
The most accurate way to characterize this is to say that sales numbers influenced by the tax credit represented a statistical anomaly, says Riley, a 35-year veteran of the real estate industry and president of Riley Enterprises in Bedford. As I've said before, this is not an apples-to-apples comparison, and my guess is that we won't have fair comparisons until July or August.
A more telling comparison, he says, is to contrast 2011 data with 2009, a period not affected by the tax credit. By that measure, the market seems to be stabilizing. The number of units sold statewide is up from April 2009 (739), but the median price is down from $204,900 in April 2009. In May, the number of units sold in 2011-951-actually increased from 881 sold in May 2009, while the median price has remained the same at $210,000.
Riley also notes that home sales have steadily risen in each of the first five months of this year from 543 in January to 951 in May. That's pretty typical for the seasons, he says. It's not to say that we're going gangbusters, but we seem to be in a pretty standard pattern of increased sales.
Verani agrees that comparing past year to present year gives a skewed perspective. The tax credit really created an artificial bump in sales in April 2010, but when you look at the market's year-to-date figures, we're seeing what could be called true sustained growth, she says.
Recovery After the Bubble
According to the NHAR, the statewide median price for a single-family residential home in 1998 was $127,500. That number rose to its peak of $270,000 in 2005, a remarkable 112 percent increase (a 16 percent per year average increase, or 11.3 percent compounded annually), after which the state had four consecutive years of median price declines (1.9 percent in 2006, 1.6 percent in 2007, 9.9 percent in 2008, and 9.8 percent in 2010).
That trend may be reversing, with the NHAR reporting a 1.4 percent median price increase from year-end 2009 ($212,000) to year-end 2010 ($215,000).
A report from the Northern New England Real Estate Network (NNEREN) shows identical figures, and states that the first annual increase in several years suggests that home prices are stable. According to the NNEREN report, sales dropped 3 percent, with 10,525 homes sold in 2010 versus 10,810 sold in 2009. In addition, there were also 2,635 condominiums sold at a median price of $165,000, holding steady with 2009 figures.
The Foreclosure Effect
According to the NH Housing Finance Authority (NHFAA), March saw a record number of foreclosures filed-543-a 90 percent increase from the previous month of February and an increase of 21 percent from March 2010. Another 404 foreclosure deeds were recorded in April, a 12 percent increase from April 2010, but a 26 percent drop from the previous month.
The good new is, foreclosure notices, which indicate the level of impending foreclosures, were down significantly. The moratoria on foreclosure proceedings by several large lenders caused a slow-down in the pace of foreclosure deeds observed between October 2010 and January of this year. The increases in foreclosure deed activity in March and April indicate a return to a more rapid pace of foreclosure proceedings, NHFAA states in its June foreclosure report. The larger question remains, will the slow but steady improvement in New Hampshire's underlying economic conditions slow the rate of foreclosure this year, or will we return to the record high numbers of foreclosures experienced in 2010?
Francese says that while foreclosure figures sound ominous, a few hundred foreclosures compared to approximately 600,000 owner-occupied dwellings in the state is a relatively small ratio. I am bothered that the focus is on foreclosures rather than on something more representative of the totality of housing in the state, Francese says. Our figures are not like other states that are on a fast track of rising foreclosures. The numbers have a high impact though on our consumer confidence. We are being falsely scared into not movingliterally.
The Ripple Effect
Though home market values have suffered a prolonged decline over the last six years, it has not directly affected educational funding, according to Delay. Following a 1997 Supreme Court decision requiring the state to guarantee adequate public education, approximately half of this funding is generated by statewide property tax. The commissioner of the department of revenue administration sets a new rate each year, based on an assessed value of taxable property. Since NH annually adjusts the property tax rate to align the budget demands with changing assessed value, educational funding has not fallen short because of decreased home values, Delay says.
However, there is a ripple effect from the drop in other sources of revenue, he says. The real estate transfer tax dropped from $160 million at its peak six years ago to only $85 million at the end of fiscal year 2010, dealing a financial blow to the state's budget. According to Delay, real estate transfer taxes contributed $52 million toward education funding in 2005, but only $29 million in 2010, something budget makers have had to make up for with cuts, including funding to school districts and municipalities.
Delay says that more cuts to funding are expected because home values are not increasing at a significant rate and the supplemental federal funding generated by the 2009 American Recovery and Reinvestment Act is no longer cushioning the financial effect of the recession.
The revenue to the state is not back to where it was, the stimulus program is essentially done, so what we are seeing this year is a rise in property taxes and funding cuts at the school level and to municipalities, Delay says. He cites Manchester, which hiked property taxes by 4 percent and instituted layoffs at the school district and municipal levels.
New Construction
New construction in NH continues to struggle, according to the NH Center for Public Policy's annual economic outlook report issued in May. Construction employment in the state declined at an annual rate of 6.3 percent in the last five years. There is good news for the construction industry though. The report forecasts that construction employment will increase by 1.2 percent each year from 2010 to 2015 and housing permits will recover from a historic low of 3,000 in 2010, to about 6,000 by 2015.
John Ela, CEO of Epoch Homes in Pembroke, says that an increase would be a welcome change for the industry, as his own business is down 50 percent from the market's peak in 2004. He says the affordability of his company's modular construction is the only reason his business did not plummet to the same record lows that other builders experienced. Ela says housing starts for the first quarter were down nationally 35 percent, continuing a steady decline since 2005. He says his company downsized during the recession, but this year sales are holding flat with last year.
I think we are stabilizing and at the beginning of recovery, but what is slowing it down is the difficulty in obtaining financing and an appraisal system that is broken, he says. People need larger down payments and it is tougher to get a loan.
Kendall Buck, executive vice president of the Home Builders and Remodelers Association of NH, says while stabilization seems to have arrived, getting an accurate assessment of the market is tricky. He says new construction in the state has slightly improved since 2009, but year-to-year comparisons are dismal because, once again, of the homebuyer's tax credit that ended in April 2010.
If you compare the number of housing permits from last year, we are down 24 percent, Buck says. But April of last year had an increase of 97 percent, which was an anomaly caused by the tax incentive. You have to look to 2009 for an accurate picture of what is happening.
According to Buck, there were 407 housing permits issued as of April of this year, which represent the latest figures available from the Census Bureau. The same period in 2009 saw 383 building permits for single family homes, putting 2011 at a slight increase that Buck says indicates stabilization and perhaps a slow recovery.
Buck says that one niche that seems to be expanding faster than others is green residential construction, particularly in regions that are more affluent and have higher priced homes, like the Seacoast and the Lakes regions.
Jim Bruss, co-owner of Bruss Construction in Bradford, can attest to the increased preference for sustainable construction. Things picked up for us in the first quarter with a 25 percent increase, and the second quarter is matching it, Bruss says. Our business is different in that almost everything we do is green. I don't know if that is the reason we are seeing this increase or not, but we feel very fortunate. Because of the spike in business, he hired two new superintendents and two project managers.
That theory is backed by bankers. Peter Thompson, a mortgage loan consultant at Laconia Savings Bank in Concord, specializes in green home construction loans. There is quite a significant increase over last year in applications for loans for green residential construction, Thompson says. I think fuel prices play a role in it and people are looking for a home that will be desirable to buyers in the future. This year, so far, every construction loan I have done has been green.
Thomson says that a construction loan for a green home can hit obstacles in the appraisal process because unless an appraiser is trained to take into account the value of the energy savings of the more costly green home, the appraisal can fall short.
Carla Bailey, a realtor with Coco, Early and Associates-Bridge Realty Division in Hampstead, agrees that loans are more difficult to obtain. Lender caution is having a really big effect and buyers are facing challenges in getting approval, Bailey says. Foreclosure and short sales are also taking a toll. Foreclosed homes are now being used in appraisals and quite often sell for considerably less than market value which, when used in an appraisal, will bring the value of other homes down.
But, when it comes to pricing and affordability, Ela says things have vastly improved for the average family. We are back to where we were before the bubble with housing that is affordable, he says. And, I think when the market turns, it will turn fast. It won't skyrocket like it did, but when it turns we will see strong increases that will continue each year.
Verani agrees, noting that some regions of the state are already seeing an increase in sales while real estate geared toward the lower-income buyer is still challenged. The Lakes region and the Seacoast are experiencing an upswing in high-end homes. Those more financially secure consumers feel it is a good time to buy and financing is not a problem, Verani says. Condos and age 55-plus communities are not faring as well because there is an abundance on the market and financing, which is typically required for condos, is harder for people to get now.
Verani notes that buyers 55 and older face an additional challenge since they typically have to sell their current home before seeking to buy into a 55-plus community. But she agrees that the market is at a point of affordability for the average family, and that getting buyers qualified is the biggest obstacle realtors are currently facing.
Just as the pendulum swung towards easy money, it is now 180 degrees from that. The government and lenders have to get their business models back towards the middle, Verani says. The overreaction of these institutions must be corrected if we truly want a recovery with legs. N
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