Housing and Economic Forecasts Point to Rising Activity and Flat Home Prices

Dennis Norman St LouisSpeaking yesterday at a forum at a meeting of the National Association of REALTORS (NAR), several industry “experts” had reasonably optimistic opinions of the housing market and expect home sales to continue on an uptrend through 2012.

Among the experts at the forum was, of course, Lawrence Yun, the chief economist for NAR, who said he felt existing home sales would improve gradually, but unevenly. “If we just hold at the first-quarter sales pace of 5.1 million (home sales), sales this year would rise 4 percent, but the remainder of the year looks better,” Yun said. “We expect 5.3 million existing-home sales this year, up from 4.9 million in 2010, with additional gains in 2012 to about 5.6 million — that’s a sustainable level given the size of our population.”

Yun went on to say that he feels mortgage interest rates will rise gradually as well, hitting 5.5 percent by the end of this year and average 6.0 percent in 2012…a rate he calls “still relatively affordable by historic standards”. “A huge volume of cash sales, supported by the recovery in the stock market, show that smart money is chasing real estate. This implies that there could be a sizeable pent-up demand if mortgages become more readily accessible for qualified buyers,” Yun said.

As for the economy in general, Yun predicts the GDP to grow 2.5 percent this year and 2.7 percent next year while adding 1.5 million to 2 million jobs over the next two years. As a result, he expects the unemployment rate to decline to 8.8 percent by year-end and average 8.6 percent in 2012 before finally returning to a “normal” level of 6 percent around 2015.

Yun is forecasting an increase for new home starts but says they will remain below long-term trends, reaching 603,000 new home starts in 2011 (up from 595,000 in 2010) and continuing to increase until there are about 908,000 new home starts in 2012. As for selling these new homes, Yun predicts a record low number of home sales this year, with only 320,000 new homes selling (wow, for a change I’m the optimist…since January, I’ve been predicting new home sales of 331,000- 361,000 homes this year) increasing to 487,000 in 2012. “A recovery in new homes will be slow because of the extra price discount in the existing home market,” Yun noted. In March, the typical new single-family home cost $53,300 more than an existing home.

Yun appears not to have concern about inflation, predicting the Consumer Price Index will rise 2.9 percent this year, however he did express concern about the effect of oil prices on the economy saying “We’ll be closely watching the impact of fuel costs on consumer spending and inflation — that would slow economic growth, job creation and home sales.”

Yun said apartment rents are trending upward and are likely to rise at faster rates as occupancy increases. “Following the correction in home prices, it has now become more affordable to buy in most of the country. Twice as many renters had enough income to buy a home in 2010 in comparison with 2005, so we have a much larger pool of financially qualified renters,” Yun said. “Rising rents and excellent housing affordability conditions will encourage potential buyers who’ve been on the sidelines.”

For existing homes, Yun sees no appreciation in home prices, but, no further declines either, predicting that the median price for existing homes will stay near $170,000 over the next two years.

Joining Yun at the forum was Frank Nothaft, chief economist at Freddie Mac. Nothaft appeared to have a similar view of the market as Yun stating “Economic activity will accelerate this year — there will be no double dip in the economy.” He’s more optimistic than Yun on job growth, expecting 2.0 million to 2.5 million jobs created in 2011 with unemployment dipping to 8.4 percent by the end of the year.

Nothaft feels mortgage interest rates will hit 5.25 percent by year end, and home sales will increase 5 percent this year from 2010 and with regard to home prices, Nothaft said “national home price indices are close to a bottom and prices are likely to bottom sometime this year”.

So, there you have it…pretty much what we’ve been seeing and feeling lately…the housing market has pretty well bottomed out and from here we are headed to a recovery, albeit a long, slow one.

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