James Clary, jclary@hrpdcva.gov

Economist

The regional economy depends on a strong housing market for several important reasons. Along with increased consumer spending, increased residential construction has historically served as a primary driver of recovery. The ability to sell one’s home in cases of economic distress or even a benign change in family status is important for the economic health of Hampton Roads residents. Lastly, a well functioning housing market permits families to relocate within the region, allowing workers to move closer to their jobs, lessening the traffic burden on regional infrastructure and speeding the flow of commerce.

Unfortunately, a variety of factors lead Hampton Roads economists to be less confident about the outlook of Hampton Roads housing market over the medium term. One, the expiration of the Federal Home Buyer Tax Credit will remove a powerful incentive to enter the housing market, as well as decrease home sales severely over the summer because many sales were accelerated to take advantage of the tax credit. Two, the central bank removed its support of the mortgage-backed securities market in April, and while mortgage rates have continued to maintain historic lows, economists expect rates to increase over the medium term, which will discourage both sales of existing homes and new home construction. Lastly, there is a significant inventory on the market, and while current data indicates increasing pending home sales through April, logic dictates that pace will weaken in May; indeed, the Mortgage Bankers Association reports that home purchase loan applications are at their lowest level since February 1997. There are approximately 15ꯠ active listings in Hampton Roads, which equals 9.5 months of inventory at current sales rates, but unless supply contracts unexpectedly in May, the months of housing inventory will increase significantly, putting further downward pressure on prices. Lower prices will continue to impact the construction market in Hampton Roads, which is now only issuing permits at half the historical rate. The one positive from this situation comes from housing affordability in the short term, as low interest rates and declining prices (down 9.85% between 2008 Q1 and 2010 Q1) have returned the housing prices in line with rental rates.