Home > About BNE > Press Room > 2008 Archive > February > Expert sees strength in Buffalo market

Expert sees strength in Buffalo market

Matt Glynn - NEWS BUSINESS REPORTER

Lawrence Yun says all real estate is local, and he uses the Buffalo area's experience to make his point.

"Even though we are seeing a large sales decline in many parts of the country, it's showing up [in] the national data, locally the sales data are actually vibrant and picking up," said Yun, chief economist and senior vice president at the National Association of Realtors.

"Certainly things are turning for the better here in Buffalo," he added.

Yun was one of the speakers Wednesday at the first "economic summit" organized by the Buffalo Niagara Association of Realtors, which drew a crowd of about 250 people in Cheektowaga. The BNAR reported that existing home sales in the local market rose 3 percent in 2007, bucking the national trend.

Yun acknowledged that last year was a bad one for national home sales, fueled by the subprime mortgage meltdown. In 2007, national home prices declined for the first time probably since the Great Depression, but he said that 1.5 percent drop should be put into context.

"The proper perspective is, well, we did have a housing market boom, we had better than a 50 percent runup in home prices, and now we're giving back 1.5 percent from a nationwide point of view," he said.

Yun said he believes there is pent-up demand for home purchases. But he argued that the national media have a "bias" toward stressing negative news about real estate, making potential buyers unjustifiably hesitant.

"There seems to be excessive pessimism among potential home buyers in not wanting to make a purchase, despite the fact they have a huge capacity financially," he said. "With this fear in place, it can lead to a self-fulfilling prophecy."

In his view, as more buyers hold back, home inventories will rise, prices will fall, and potential buyers will become even more skittish.

Some high-priced parts of the country are going through a necessary transition since their markets accelerated too quickly, he said.

Yun said the national market has retreated to the pre-boom level, after removing the "excess boom" from the market. He cited examples in markets like Florida and Nevada, where a buyer would purchase 10 homes in one neighborhood solely to "flip" them.

In the Buffalo area, he noted, new-home construction has fallen in recent years, despite rising sales of existing homes. Those concurrent trends could cause the housing inventory to tighten, he said, and lead to higher home prices.

"The demand is strong, but the supply is not coming on to the marketplace," he said.

Yun forecast that this year would be "neutral and stabilizing" for the national housing market. He also predicted the country would avoid a recession, due to the stimulus package crafted in Washington and the Federal Reserve's rate cuts.

Mayor Byron W. Brown, who also spoke at the event, said the Buffalo area's low real estate prices are attracting attention. Each week, he said, investors, investment groups and business leaders from places like Boston, New York City, Ohio and California make inquiries.

"We have seen investors that are expressing tremendous interest and confidence in the city, and that only bodes well for the future of Buffalo and Western New York," Brown said.

Brown said the city faces tough challenges. Last year, the city was identified by U.S. Census data as having the second-highest poverty rate in the country.

"The national cost of not investing in cities, and in our residents in these cities, is enormous," he said. "We are losing the potential of children raised in poor households because they typically have lower productivity and earnings as adults."

But Brown said the city has also attracted new economic development and improved its fiscal health, and he called for the control board overseeing city spending to be shifted to advisory status.

Richard Deitz, senior economist with the Federal Reserve Bank of New York's Buffalo branch, said Upstate New York hasn't endured either the same housing booms or busts as the nation.

The Buffalo area also had a lower rate of subprime foreclosures, with a 5.2 percent rate compared to a 7.3 percent nationally, he said.

Deitz said it appears the job losses recorded in parts of Upstate New York in recent years has "bottomed out." While the Buffalo area lost 0.4 percent in employment from 2002 to 2006, it appears to have gained 0.6 percent last year, which was still below the national average, he said.