Obama proposed a new program to help Americans hold onto their homes and allow them to refinance their mortgages at historically lower interest rates. He offered few details on the plan but estimated savings of about $3,000 a year for average borrowers.

“While government can’t fix the problem on its own, responsible homeowners shouldn’t have to sit and wait for the housing market to hit bottom to get some relief,” he told the gathering of attendees including lawmakers, government leaders and invited guests.

“That’s why I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year in their mortgage, by refinancing at historically low interest rates. No more runaround from the banks. A small fee on the largest financial institutions will ensure that it won’t add to the deficit and will give banks that were rescued by taxpayers a chance to repay a deficit of trust,” he added.

As the housing crisis takes center stage in the campaign, Obama also referenced the challenges businesses face in a difficult economy.

“An economy built to last is one where we encourage the talent and ingenuity of every person in this country,” he said. “It means we should support everyone who’s willing to work and every risk-taker and entrepreneur who aspires to become the next Steve Jobs.”

The center of Obama’s address focused on improving the economy and restoring the American dream. He spoke of restoring basic goals such as owning a home, earning enough money to raise a family and putting money away for retirement.

He followed up Tuesday night’s address with a three-day tour of five states ending today in Michigan. Polling shows Americans are divided about Obama’s overall job performance but unsatisfied with his handling of the economy. His speech Tuesday comes just a few days before the Florida Republican primary that could help set the path for the rest of the race.

However, as the economy continues to struggle, many young adults throughout the country are finding out that life after graduation is anything but simple.

The Bureau of Labor Statistics has estimated that roughly two million college-educated workers 25 years of age or older are currently unemployed and the numbers rise significantly for younger demographics.

Researchers believe that more young adults are moving back in with their parents as a result of the high unemployment rate, unmanageable student loan payments and the unstable housing market, all of which leave millions of young people unable to rent or purchase their own home.

The U.S. Census Bureau released a report last month stating that the percentage of young adults living in their parents’ home increased noticeably over the past six years.

According to the report, the percentage of men age 25 to 34 living in the home of their parents rose from 14 percent in 2005 to 19 percent in 2011 and from eight percent to 10 percent over the period for women.

Likewise, 59 percent of men age 18 to 24 and 50 percent of women that age resided in their parents’ home in 2011, up from 53 percent and 46 percent in 2005. College students living in a dormitory are counted in their parents’ home and are included in these percentages.

Since the report counts college students living in a dormitory among those percentages, these numbers may be a bit skewed. The frail job market and a national unemployment rate of 8.6 percent can contribute to this growing trend.

The country’s ongoing housing woes have not helped. Weak consumer confidence and depreciating home values have affected prospective home buyers of all ages, encouraging many people, including young adults, to wait to buy.

These statistics were released as part of the U.S. Census Bureau’s 2011 “America’s Families and Living Arrangements” report, which is founded on data from the 2011 Current Population Survey.

NAR is now offering current state-by-state reports on international transactions allowing individuals to understand the impact this expansion has on state markets as well as on economic activity.

Created in November, the purpose of the reports are to present recent economic and demographic data related to international business activity directly associated with each of the U.S. states.

There is one report per state including one for the District of Columbia with a total of 51 reports. Each report is in PDF format and viewing or saving these reports requires Adobe Acrobat Reader.

Each report includes the following information:

• Population demographics: U.S. born, foreign born, naturalized and non-U.S. citizen residents
• Main languages spoken in households
• Immigration and naturalization trends
• Non-immigrant visitors to the state
• Foreign direct investment in the U.S. and the specific state
• Value of state exports by type of product
• State exports to specific trading partner counties

These reports are one of a number of recently released NAR reports on international subjects. The 2011 NAR Profile of International Home Buying Activity presents an overview of U.S. home purchases by people whose primary residence is outside of the U.S.

According to the report, close to $100 billion in U.S. property was sold to foreign buyers from 70 different countries in 2010. More than 62 percent of these sales were paid in cash and $5 billion were paid in real estate commissions.

NAR’s research continues to show an increase in the number of Realtors® who work with international clients. The global real estate business was $66 billion in 2010 and rose to $82 billion in 2011.

Pennsylvania’s international business report can be found here.

“While the headwinds remain strong going into 2012, there are indications the economy and the housing market are gaining ground, albeit slowly,” said Frank Nothaft, Freddie Mac vice president and chief economist.

Nothaft expects mortgage rates to remain low through the middle of 2012 and for rentals to continuing leading housing market improvements.

He offers the following five market predictions:

• The U.S. economy will continue to improve, growing around 2.5 percent in 2012.
• Unemployment will slowly drop but will stay above 8 percent next year.
• Mortgage rates will remain low in the first half of 2012.
• Home sales will improve slightly but home prices will continue to fall.
• Expect less single-family originations but more multifamily lending in 2012.

“Sustained and increased job growth beyond the average monthly payroll gains of 130,000 so far this year ending in November are essential,” he added. 

He forecasted that recent modifications to the Home Affordable Refinance Program would increase refinance originations by more than $100 billion over the next year, giving a lift to purchase-money but letting single-family originations to enter a shortfall over the next year.

“All told, next year will be another bumpy ride,” he said

Freddie Mac’s full report is available online.

Economist Kevin C. Gillen, Ph.D.

As an economist who writes and speaks frequently about our region’s housing market, I’m asked if I could deliver some good news for a change. I often respond with, “Sure: the good news is that the bad news is a lot worse everywhere else!”

Outside of Pennsylvania, the typical U.S. home has depreciated in value by more than 30 percent since the bursting of the housing bubble, according to Case-Shiller’s 20-City composite house price index. That is a larger decline than what was even seen during the Great Depression. But here in Pennsylvania, the average home has fallen in value by only nine percent, according to the Federal Housing Finance Agency (FHFA); less than a third of the national decline.

Even though the Commonwealth’s largest city of Philadelphia has fallen 19 percent from its peak, that’s still less price deflation than in 18 of the 20 cities tracked by Case-Shiller. And the Commonwealth’s second-largest city, Pittsburgh? Its average home price has fallen zero percent, according to FHFA. You read that right: zero deflation.

Of course, price deflation puts homeowners underwater: owing more money on their mortgages than what their houses are currently worth. Currently, about a quarter of all U.S. homeowners are in such a situation, according to research by Zillow. (Maybe they should be referred to as “homedebtors,” instead?) In Pennsylvania, only about eight percent of homeowners are in such a situation. Not only is this significantly less than the national average, but only three states (NY, OK and ND) can claim a lower percentage of negative equity than us.

Where there is negative equity, there are foreclosures. According to RealtyTrac, one in every 570 American households received a foreclosure notice last month. In the hard-hit Sunbelt states of California, Nevada, Arizona and Florida, the number is one in every 242 households. In Pennsylvania? Only one in every 1,166 households received a foreclosure notice last month. Even in the hardest-hit county of Philadelphia, the number is one in every 800 housing units; still well above the national average.

Still, there’s no doubt these are enormously challenging times for real estate agents and others in the housing industry. While many of our numbers may be better than the national averages, the one that has taken a big beating is home sales, which are currently running well below their normal levels. Until our inventories come down, the economy picks up and lending condition loosen up, the current sluggish market conditions will continue to prevail.

As bad as these current times may seem to be, we actually should be grateful for how relatively good they are.

I thought I would never see the day. Robert Bridges has penned an article entitled “A Home Is a Lousy Investment” (Wall Street Journal, July 11, 2012).  Bridges comes to the conclusion that in the post-housing bubble period, many things have changed.  The next generation “would be foolish to imitate their parents and view ownership as the cornerstone of personal finance.”  He concludes “owner-occupied homes will always be the basis for healthy and stable neighborhoods. But coming generations need to realize that while houses are possessions and part of a good life, they are not always good investments on the road to financial independence.”  What a difference a few years makes!

It has been four years since house prices began falling and most commentators have been less than optimistic. It was only a matter of time until someone claimed that America was experiencing its own “Lost Decade.”  This refers to a comparison with the slow growth and stagnation in Japan for the past several years.  Chris Isadore from CNNMoney.com (June 8, 2011) predicts a “long and painful adjustment period … of high unemployment and slow growth that will likely last for six or seven more years …”  In fact, it is acknowledged now that the housing sector has become a major drag on the economy, another new experience.

Traditionally, the U.S. adds more than a million new households every year and this drives the need for new construction. With the economic problems in recent years, the number of new households has fallen well below this historic norm. According to NAR Chief Economist Lawrence Yun, household formation has only been increasing by 500,000 to 600,000 for the past three years as households combine, kids move back in and college grads add roommates.

Yun further points out that many of these living arrangements are temporary.

Homebuilders overbuilt for most of the 2000′s adding more than two million housing units at the peak in 2005. The math is simple – if we build two million housing units in a year and we only form 1.2 million new households, an excess supply of units for sale/rent will build up.

In the past four years, new construction of housing units has fallen dramatically and we are slowly working through the excess inventory. As the economy improves, the formation of new households should return to normal levels and then as the pent-up demand bubble bursts, we’ll see historically inflated numbers of new households being created.

As Yun puts it, “There could even be more-than-normal household formation for a few years from both normal population growth and from people leaving temporary arrangements.”

That bursting of the demand bubble will cause a temporary housing shortage as the building industry works to ramp up activity to meet the new demand. The results will be rapidly increasing prices (both rentals and purchases).

Like most markets, the real estate market moves like a pendulum. We saw a major swing in the 2000′s and now we are about to see the other side of the arch. As good as it might feel to see housing demand increase, let’s hope this swing is not as dramatic as the last; the downswings can be painful.

Two Pennsylvania cities were listed in a recent study, Demographia International Housing Affordability Survey: 2011. 

The seventh annual report, using third quarter data from 2010, focuses on English-speaking countries: Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States. 

The report examines affordability of housing in 325 markets in the various countries using a primary comparison metric, the “median multiple” (house prices/household income). If this multiple rises dramatically, affordability is likely to be curtailed, especially since the evidence is that this multiple is relatively constant over long periods of time and consistent across the various nations. Specifically, the median multiple has typically been 3.0 or less. Recent developments have put pressure on this historic relationship. However, the study notes that unlike elsewhere, for cities in the United States and Canada, the historic ratio generally holds up.

Of the 325 markets, 82 have with populations over 1 million people. Twenty are judged to be “affordable” (with multiples of 3.0 or less), 25 are “moderately unaffordable” (3.1-4.0), 13 are “seriously unaffordable” (4.1-5.0), and 24 are “severely unaffordable” (5.1 or more). Of the 20 deemed affordable, all are located in the U.S. Of the next 25 noted as moderately unaffordable, 22 are located in the U.S. and 3 are in Canada. Clearly, the U.S. housing market provides considerable bargains compared with all of the other countries in the English-speaking world!

In Pennsylvania, Pittsburgh comes in as affordable (2.7) and Philadelphia is moderately unaffordable (3.8).  These ratios appear to be reasonable when considering the two largest cities in the Commonwealth.

According to the study, the most affordable major markets and their associated multiples are: Atlanta (2.3), Indianapolis and Rochester (2.4), Cincinnati, Cleveland and Detroit (2.5), and Buffalo, Las Vegas and St. Louis (2.6).  Many of these cities have been hit hard by the weak economic conditions we see in many housing markets. However, note that with the exception of Las Vegas, none of the other “sand cities” make the list. Prices relative to income might still be too high in those locales. None are near oceans.

The most severely unaffordable major cities are largely in Australia and New Zealand: Sydney (9.6), Vancouver, CN (9.5), Melbourne (9.0) and Plymouth, Devon, San Francisco, USA, London and Adelaide (7.0 or greater).  It is not a coincidence that the two North American cities in this group are located on the West Coast: locations on oceans command significant price premiums.

Generally, 115 are deemed affordable (with 106 in the U.S. and 6 in Canada) and 94 are deemed moderately unaffordable (with 74 in the U.S., 17 in Canada, and 3 in Ireland).  The 73 which are severely unaffordable are found in Australia (24), UK (21), US (15), Canada (6), and New Zealand (4).  This is consistent with the fact that Australia has enjoyed a 20 year high growth spurt and housing “Down Under” has experienced considerable price appreciation as well.  The data also suggests that some house prices in cities in the U.S. and Canada remain pricy

Finally, it is interesting to compare the national median multiple averages:

• Australia: 6.1
• Canada: 3.4
• Ireland: 4.0
• New Zealand: 5.3
• United Kingdom: 5.2
• United States: 3.0

 Housing is indeed an important asset in America and relative to elsewhere, moderately priced in many communities.

The study gives reasons for unaffordability:

Prices increase with additional land use regulations. The report emphasizes the major impacts that modern land use regulation (e.g., “smart growth,” limits placed on sprawl, and planning biases toward high density development) has on affordability. For example, in Australia, about 95 percent of the increase in the price of new houses is due to land price appreciation. In San Diego, house prices were 250 percent higher than in Dallas, although building costs were only 15 percent higher.

Higher house prices lead to lower standards of living. With rising prices relative to income, more of the household budget must be allocated to housing costs. If so, less money is available for other goods and lower growth is observed. Following this perspective, rising house prices is not a good thing!

Rising relative prices make cities less competitive. The study notes that between 2000 and 2009, the more unaffordable metropolitan areas lost nearly 10 percent of their residents to cheaper locales.  Less expensive cities gained some 4 million new residents in 500 U.S. cities.

Some commentators have called for an easing of land use regulations especially in Australia and the UK. Of course, we see the same effects in U.S. metropolitan areas located on various coasts. It turns out that being located near the ocean does make a difference: demand is stronger there than elsewhere, the supply of land is limited by nature, and planners seem to ensure additional restrictions. Only the last factor can be altered and yet, the forces are in place to continue along the same path for years to come. On the other hand, America’s housing stock looks very good relative to housing in all of the other countries. It is a legacy of which we can be proud.

Before the housing bubble exploded in 2005, there were about 100,000 foreclosure filings in the U.S. Since 2006, however, there are reportedly over 9 million and counting. The conventional wisdom is that in recent years, the rising number of defaults and foreclosures has resulted in growing inventories of unwanted new and used homes, slower markets (e.g., longer “time-on-the-market” transactions) and lower prices, all else the same. In other words, the foreclosure crisis continues to be a major part of many local housing markets.

Jim Haggerty of the Scranton Times-Tribune notes that foreclosure activity appears to be slowing down in Pennsylvania as well as throughout the nation. Using just-released RealtyTrac sales data, he notes that the number of foreclosed transactions in Pennsylvania dropped a whopping 29 percent from the first quarter of 2010 to the first quarter of 2011. This change is virtually identical to the decline nationwide (-27 percent). However, these days, even with the reported significant declines, the raw foreclosure sales numbers are still 10,401 in Pennsylvania and a substantial 681,153 in the entire nation. (citizensvoice.com, May 27, 2011)

One might be tempted to conclude that such dramatic reductions in foreclosure sales rates would signal an end to the (default and) foreclosure crisis. Perhaps so but caution is certainly in order.  One yearly change does not make a trend.

Here are a few caveats:

1. It is widely held that many banks have been holding back foreclosed properties from the open market hoping for improving market conditions. This shadow inventory may be significant.

2. The use of short sales in lieu of foreclosure, a growing strategy among lenders, may rise further in the future, as lenders seek to avoid the costs of foreclosure proceedings. This strategy masks additional weakness in residential markets.

3. There is likely to be seasonality in first quarter data series. Housing markets slow down during end-of-year holidays and due to winter weather in many locales. It is thus difficult to draw any overall conclusions from year-over-year winter quarter changes.

4. While the impact of the “robo-signing” scandal may have worked itself out through the system, inventories of residential properties remain higher than historic averages.  Also, fewer transactions per month add to the surplus of homes on the market.

5. There is a general expectation that foreclosure sales require additional scrutiny of and expenditure on the physical product due to damage and neglect from previous, unhappy owners.

6. Finally, it is claimed that buyers may be holding back offers thinking that prices may yet fall further. At the same time, sellers may be waiting to list or re-list their properties, hoping for an up-tick in price expectations. Even if foreclosed properties have peaked in number, housing markets have yet to stabilize.

All of these conditions suggest home price levels and the number of transactions may continue to be weak. Economic forces are slowly taking over and new price equilibria are being established. It has taken a long time for the new house price levels to be produced in part due to government policies designed to prop up prices but also due to weak economic growth and high unemployment rates. The end of 2011 and the beginning of 2012 continue to look better but “patience remains a virtue” for all of us in the industry, just like our mothers always reminded us!