Housing Market Outlook and Forecast

This week I attended an event at the St. Louis Association of REALTORS® in which Lawrence Yun, Chief Economist for the National Association of REALTORS® was the featured speaker and gave his take on the housing market as well as his housing market outlook.

“Stimulus Had to End”

Echoing what I have heard from several economists and my own thoughts, Yun, with regard to the home-buyer tax credit program that just ended, said “(the) stimulus had to come to an end” leaving the market to stand on it’s own. He said that, as expected, home sales have fallen off as a result of home-buyers that rushed to take advantage of the tax credit. He went on to say that as long as the reduction in home sales only lasts two or three months as expected we should be OK but if the slow-down continues for five or six months after the end of the tax credits, we will probably see a second dip in the housing market. Dr. Yun did stress however, that if there is a double dip int he market it will much milder than the first dip.

Tax Credit Recap

Dr. Yun gave the following stats on the home-buyer tax credit program:

• 4.4 million people will receive the credit
• 2/3 of credit recipients are first-time home-buyers
• 1/3 of credit recipients are repeat home-buyers
• 1 million of the buyers would not have bought a home without the tax credit
• 3.4 million of the buyers would have bought a home even without the credit so the credit was basically a “bonus” to them

Yun said he felt the program was a success because it was responsible for reducing the inventory of homes for sale by 1 million and helped stabilize home prices.

Inventory of Homes For Sale Will Be “Ugly” in short-term

Dr. Yun said that, for the short term, the inventory condition will “look ugly” and may even pass 10 months supply which, historically, is the point at which home prices fall. A concern about home prices falling, aside from the obvious, is that when prices fall foreclosures tend to increase as “underwater” homeowners finally give up and “toss the keys to the lender”.

Jobs and Unemployment

Dr. Yun said that there are basically the same number of jobs today in the U.S. that there were 10 years ago, but we now have 30 million more people than then. His projection is that it will take 4 to 6 years to get back down to 5 – 6 percent unemployment. There are currently over 6 million workers in the U.S. that are long-term unemployed (more than 26 weeks).

Other Tidbits

• “Psychology is driving the market today”
• Very small movements in home prices are expected from this point (no more than 5 or 6 percent a year) now that home prices have stabilized
• Short sales and foreclosures account for 35 – 40 percent of home sales. They should account for only about 5 percent but will remain at elevated levels for the next couple of years.
• Housing formation has not increased with population…meaning that even though population has increased the demand for housing hasn’t. This is a result of people “doubling up”, finding room-mates, taking a an additional room-mate, adult kids continuing to live with parents, etc.
• People moving “inter-state” is down significantly and people moving “intra-state” is down modestly.

Outlook and Projections

Dr. Yun made the following housing market forecasts:

• 5.3 million existing homes will sell in 2010, 5.6 million in 2011 (there were 5.15 million sales in 2009)
• 400,000 new homes will sell in 2010, 570,000 in 2011 (there were 374,000 in 2009)
• Home price growth will be 0 -2 percent in 2010 and 2 – 3 percent in 2011

Dr. Yun pointed out that a of the housing market is the very high inventory of homes for sale and high vacancy rate. In addition, if prices do fall then this has a negative phsychological effect on home-buyers as well.

Overall I thought the report and outlook was pretty realistic and somewhat encouraging.