A Stumble, but Strong Prospects in Lincoln

By Ken Fears
Manager, Regional Economics

Home sales fell off sharply in Lincoln, Nebraska during the second half of 2010. The decline in sales tripped up the price momentum which Lincoln had for the first three quarters of 2010. Still, Lincoln possesses solid fundamentals, which are likely to help it through its recovery in 2011 and beyond. Along with Lincoln, Local Market Reports for 153 metro areas that highlight trends through the 4th quarter of 2010 are now available.

Read more about the highlights from Lincoln after the jump.

The median home price in Lincoln rose steadily from 2002 through 2004, before sputtering in the subsequent two years. Prices slid outright in 2008 and 2009, but not enough to erase the equity gained if one had purchased early in the boom. More recently, the median price rose in the first three quarters of 2010, partially a result of the Federal tax credit, but also a result of renewed optimism in the economy. However, home sales slid sharply in the 3rd and 4th quarters of 2010 as compared to the same time period in 2009, when the Federal tax credit was in full swing. Consequently, the median price fell from this heated period as well.

Despite the decline in home sales, Lincoln possesses solid fundamentals. The unemployment rate eased from 3.9% to 3.5% over the 12 months ending in December as 1,700 more jobs were created. Employment growth was strongest in the trade, transport and utilities sector along with the professional and business services and education and health service sectors. While the local economy has only grown 2.0% over the 12 months ending in December compared to 2.2% for the U.S. as a whole, Lincoln’s economy fared much better over the prior two years.

Lincoln’s relative price stability and economic strength helped to minimize foreclosures in this area. The local foreclosure rate on prime loans was just 0.8% in November of 2010, less than a quarter of the 3.4% national average. What’s more, the 60-day and 90-day delinquency rates fell steadily over the 12-month period ending in November, suggesting that the foreclosure rate on prime loans was set to ease this winter even before the moratorium on foreclosures, a result of the national “robo-signing” scandal. Low levels of construction have also helped to keep the inventory relatively low.

Another factor driving the stability in Lincoln’s housing market is affordability. The modest decline in the median home price in 2008 and 2009 combined with record low mortgage rates to drive the average monthly debt service ratio (e.g. the average monthly interest and principal payment relative to the average household income) downward since 2006. Furthermore, the local median home price of $129,900 is half of the FHA loan limit for Lancaster and Seward counties, which suggests that most potential buyers in the area have access to government financing, a critical avenue for financing in recent years.

The housing market in Lincoln, Nebraska experienced a muted version of the national slowdown and an emergent pattern for much of 2010 before slowing in the 4th quarter. However, Lincoln’s strong fundamentals including solid job growth and a relatively tight supply of housing make it a great prospect for stable growth in the near term. For more information on the housing market in Lincoln or any of the 154 markets monitored by NAR Research, see the latest set of Local Market Reports.