Experts say housing recovery still years away

BETHLEHEM | Lehigh Valley home sales are showing life again but full recovery in prices remains years away, an expert told an audience Tuesday at Lehigh University.

Loren Keim, president of Century 21 Keim Realtors in Allentown, said the glut of foreclosures stemming from the housing meltdown will need to clear before sellers can benefit. He said that could take three or four years.

"It's going to take several years before the supply is absorbed and prices can rise," Keim said. "Right now there is too much supply and not enough demand."

Keim was one of several speakers at a daylong event held by the school's Goodman Center for Real Estate Studies. The event was titled: "Have We Hit Bottom Yet?"

Many speakers answered that question with a tentative yes but expressed reservations about the strength of the recovery.

Sellers are struggling now because they compete with bargains driven by foreclosures and short sales -- where distressed owners sell for less than they owe on the mortgage.

Foreclosures "are what sell first," Keim said. "That sucks up the buyers and drives the prices down."

More encouraging is that new foreclosures are declining. Keim said that's mostly because mortgages with loose standards, common in the housing boom, are no longer being sold.

"There is light at the end of the tunnel," he said. "Nobody believes me but in about three years we are going to see it."

Cheaper prices provide buyers with opportunities.
 

The average price for a home sold in the region in April was $199,000, according to the Lehigh Valley Association of Realtors. That's down 19 percent off the peak of $246,000 in mid-2007.

Bad as that sounds, Ann Osika, vice president of commercial real estate for Lafayette Ambassador Bank, said other parts of the country have suffered far worse.

"Compared to other markets in the nation, the Lehigh Valley is holding its own," Osika said during an earlier presentation.

The outlook favors buyers. Keim predicted home sales would rise 8 to 11 percent this year over 2009, with most of those sales occurring in the lower range of prices.

Shoppers still benefit from historically low interest rates, though Keim said rates are likely to rise later this year.

However, Keim expressed concern that the expiration of federal tax credits (up to $8,000 for first-time buyers and $6,500 for existing owners) will reveal that the market is not as strong as a recent bounce in April suggests.

LVAR last week reported that April sales rose 28 percent from year-ago levels. Keim said much of that reflected the credits, which required deals to be signed by April 30.

Since then, Keim said daily showings have dropped 70 percent among four Lehigh Valley real estate offices he tracks. He said he expects improvement by summer.

Commercial real estate still struggling

Meanwhile the commercial real estate market has yet to reach bottom, an expert said.

Linda Dietrick, managing partner at The Dietrick Group LLC, said turnaround there won't occur until businesses start hiring workers and purchasing equipment, which will drive demand for space.

"A full recovery may be several years out," said Dietrick, who performs appraisals for the South Whitehall Township real estate company. "Job losses will continue this year. Ultimately, job growth won't improve until consumers feel more confident."

Lehigh Valley unemployment is now at 9.8 percent. While the rate has stopped soaring, it's still the highest in a generation.

The commercial segment hit hardest by the recession was office space, Dietrick said, where the average price per square foot has declined about 20 percent over the past year.

As a result, landlords have become more aggressive in cutting deals to retain tenants.

"It's a tenants' market out there," Dietrick said. "Tenants are telling landlords what they are going to pay or they are going to leave."