News and Events

By Donnelle Eller

Real estate agent Ralph Stonehocker is selling four former Regency homes a couple of miles from the new AvivaUSA headquarters and Microsoft's new data center that altogether are about $375,000 below their initial listing prices.

A buyer closed on one home last week, but few other prospects have toured the other houses, which are discounted by 20 percent, said Stonehocker, a ReMax agent.

Why? Dragging consumer confidence - with buyers concerned about jobs, pummeled investments and access to credit - makes selling the Regency homes and many others difficult, even at bargain prices and 30-year fixed mortgage rates around 6 percent.

Still, in one of the worst national housing markets in four decades, folks like Stonehocker and real estate chief executives R. Michael Knapp of Iowa Realty and Carolyn Helmlinger of Coldwell Banker are encouraged.

First, a national recovery is projected for next year, although a lingering U.S. and global recession could delay it.

And second, Iowa's housing market has performed better than the rest of the nation - home sales have fallen less steeply, prices have climbed, and the state has added jobs.

"Given the deterioration of conditions nationally, some states will hold up better than others," said Robert Denk, an economist with the National Association of Home Builders.

"It's not that Iowa won't see deterioration, but it will see less than other parts of the country," he said.

Knapp points to an analyst's report that shows only one other time in the past four decades when the nation has seen a longer housing downturn.

It was 48 months between 1978 and 1982, a shock caused by double-digit interest rates.

So far, this national housing flogging has lasted 36 months and has fallen more sharply than any of the six in those four decades.

Driven down by losses in the subprime market, home sales have dropped 36 percent from peak to trough, compared with an average of 28 percent decline in the other slowdowns, the Piper Jaffray report says.

In the context of national decline, Iowa is stable, Knapp said.

Unlike the nation, experts say:

- Iowa has added jobs over the past year. Through September, Iowa gained 6,200 non-farm jobs, although the annual gains have been slowly eroding.

The United States has lost jobs each of the past nine months, totaling 760,000 positions.

- Des Moines' median sale prices increased 6 percent in the second quarter to $156,600, for example, while the national price dropped 7.6 percent to $206,500.

- Iowa's home sales and new construction declines have been less steep.

Iowa's home sales fell nearly 6 percent from their peak in 2005 through 2007, while nationally they dropped 20 percent. And Iowa's building permits fell 32 percent from 2005 to 2007, while those nationally dropped nearly 42 percent.

Housing inventories are shrinking in the Des Moines metro area.

In September, 6,069 homes were on the market, about 900 fewer than a year ago.

Helmlinger, president of Coldwell Banker Mid-America Group, said she believes the local market is now balanced with about a seven-month supply. "We get down to a six-month supply, and it could turn from a buyer's market to a seller's market," said Helmlinger, recently named chief executive of Mid-America Group, Coldwell's parent.

Stonehocker said inventory has tightened because sellers have gotten frustrated and left the market.

He thinks it will need to tighten much more for a recovery. "There are new homes that have been on the market for three years," Stonehocker said.

Through September, the numbers of building permits in Iowa have slid to levels of nearly a decade ago, data shows.

David Vollmar, executive officer of the Home Builders Association of Greater Des Moines, said many builders have switched to custom construction and remodeling or moved into commercial work to weather the slowdown.

Some builders have closed, like Regency Co., once the state's largest. Regency faces 20 lawsuits from lenders seeking cash, land and homes.

Speculative home-building has slowed and custom construction has taken off, said Denk, the economist at the national builders' group. "Loans for land acquisition, development and construction have mostly dried up," he said. "With declining land values, lenders are asking for more collateral, pulling loans back halfway through a project.

"They're saying: 'The return on investment isn't there. We need more money from you,' " he said. "It's putting builders in a tough financial position. Credit is crucial."

Stonehocker said he has represented a couple of buyers looking for deals on partially completed homes. "I was out with a client last night and on one short block, there were three - from just framed to dry walled up," he said.

Stonehocker said those buyers have to be sophisticated and extremely strong financially, such as providing large down payments. "It's hard to find a lender for a home like that," he said.

Short sale proves to be no shortcut

Grant Wilson, 24, has been trying since August to buy a Des Moines home that's a "short sale," in which the lender and homeowner agree to sell a house for less than its mortgage. The sale can enable some return to a lender and keep an owner from foreclosure.

Wilson said the delay has come from getting approvals from the lender, the foreclosure company and Fannie Mae. He's optimistic that the sale will be completed by year's end.

Wilson, who works as a debt collector for a company in West Des Moines, said he will use the savings from his purchase to make some repairs to the house. "Buying a house is a better investment than renting," said Wilson, who has lived with his parents while saving for a home. "I think home prices will eventually go back up."

Wilson said he was encouraged to buy now because of a $7,500 maximum tax credit the federal government is offering first-time home buyers. The tax credit must be repaid over 15 years.

Iowa Realty's Knapp said he hopes Congress decides to make the tax credit a gift in a second stimulus package expected to be crafted next year.

Recession question: Shallow or deep?

Lawrence Yun, an economist with the National Association of Realtors, said the federal down payment help can be significant for families in Iowa, where housing prices are low compared with markets like California, Arizona, Nevada and Florida.

Yun said the new stimulus package, combined with a $700 billion rescue package that should make mortgages more available to home buyers, is needed to help the nation's housing market rebound.

Yun calls housing key to the national economic recovery. And key to a housing recovery is jobs.

"The nation is going into a recession. The question is: Will it be shallow or will it be deep? My best estimate will be that it will be shallow," he said.

Both Yun and Denk say declining home prices have consumers on the sidelines. "As long as prices continue to decline, buyers are not going to buy, and there's no room for new production," said Denk.

Home-buying and new construction create demand for products made in Iowa - from Flexsteel furniture manufactured in Dubuque to windows made in Pella.

Kathy Harkema, a spokeswoman for Pella Corp., said the residential and commercial door and window maker is using attrition to reduce its work force nationwide after closing its Story City plant in January. The company laid off 224 workers.

"We've seen a one-two punch with the slowdown in new construction coupled with the dramatic tightening of the credit markets," Harkema said. "It's difficult for everyone to finance new projects - whether it's a new home or a new commercial building.

"And if consumers have trouble getting home-equity loans, they're not starting a remodeling project or scaling it down."

Asked if the plant closing and attrition were enough to stave off further layoffs, Harkema said: "No one really knows. Any forecast you look at shows another challenging year for housing. We're in uncertain and volatile times."

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