By Ann Londrigan
Economist John Tuccillo, president of JTA Associates and former chief economist for the National Association of REALTORS®, told the packed crowd in the closing session of the IAR Convention that the housing market is ahead of the rest of the economy.
“Over 90 percent of residential real estate markets have bottomed out, some are still bleeding, but most have hit the bottom and the foreclosure numbers still coming out are old numbers, what’s happened in the past,” said Tuccillo. “But it the housing market’s recovery will be slower that it should have been due to the stalled economy and the problems in the financial sector.”
He’s optimistic that the government’s response to the financial crisis (which he says started nearly three years ago, leading up to the Fannie/Freddie bailout and now this tumultuous week on Wall Street) will work itself out like the government measures that warded off financial collapse during the savings and loan crisis in 1985. What’s different now, says Tucillo, is the cost of this bailout is higher. In the ’80s, S&Ls were “little guys” not even trading on the stock market. What we have now with Lehman Brothers, Merrill Lynch, AIG, Freddie/Fannie–major financial institutions–is the cleanup will be more costly and take longer. And while the S&L crisis involved criminal wrongdoing, the problems we’re seeing now involve “the stupidity of people who should have known better.”
“No one should get an option ARM, ever,” said Tuccillo. “Few should qualify for zero down. Few should qualify for an interest only loan.”
What are the consequences then for REALTORS®? How will this affect business?
Tuccillo says there are two major effects. One, credit is drying up and it will be much more difficult to qualify buyers. Credit that’s available is going to bailout the financial sector. REALTORS® will have to work a lot harder to get buyers qualified.
“There will no longer be cheap loans,” said Tuccillo. “You will be forced to document everything: employment history, credit history, credit score. You will have to have money for a downpayment. Isn’t that revolutionary?”
The second effect for REALTORS® and all American consumers is higher prices. Tuccillo explained that the federal government has pumped $100 billion of liquidity into the economy and “it has to comeout somewhere.” He says ultimately this heavy-handed move, intended to fulfill the central bank’s mission of ensuring the nation’s financial stability, will result in higher prices and higher interest rates of upwards of two points higher. He advised REALTORS® to watch the Fed’s moves in the next six months to keep inflation in check.
Regarding industry fundamentals, Tuccillo said look at jobs. “People without jobs don’t buy houses or go to restaurants or shop.”
He said REALTORS® should look at the job trends in the county to see if jobs are increasing or decreasing and this will be an indicator for the housing market. [Job statistics are published by the Illinois Department of Employment Security http://www.ides.state.il.us/]
The good news?
“This will not be another Great Depression because of the demographics,” said Tuccillo. “The boomers are still in the marketplace for second homes and retirement homes. The 79 million Gen Ys will continue to fuel the housing market.”
He said while it may take 7 to 10 years to clean up the financial sector, the housing sector — which makes up 15 to 20 percent of the economy — will recover sooner. He predicts in 1Q09 we’ll see “a bump” in the economy following the election and potential stimulus measures yet to be determined during the new President’s “honeymoon period.”
“Real estate, gold, Persian rugs and Ming vases always increase in value” in an otherwise troubled economy, said Tuccillo.
