A modest recovery for existing-home sales is expected in 2008 as the impact of the credit crunch subsides, while pending home sales indicate near-term stability, according to the latest forecast released by the National Association of Realtors.
Lawrence Yun, the’s NAR’s chief economist, said the housing market will improve from a steady unleashing of pent-up demand, and from a wide abundance of safer mortgage products.
The level of pent-up demand reaching the market next year is a bit uncertain, and it is possible for even higher home sales activity than were forecasting if buyers regain their confidence about the long-term benefits of homeownership. Over the near term, home sales are likely to be fairly flat as the lingering impact of the credit crunch filters through the system.
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in September, rose 0.2 percent to a reading of 85.7 from an index of 85.5 in August. It was 20.4 percent lower than the September 2006 level of 107.6. Even with relatively low fourth quarter sales, 2007 will be the fifth highest year on record for existing-home sales. The median existing-home price in 2007 will have fallen by less than 2 percent from an all-time high set in 2006, Yun said.
Existing-home sales hit 5.67 million in 2007, edging up to 5.69 million in 2008, in comparison with 6.48 million in 2006 — the third highest year on record.
Existing-home prices are expected to decline 1.7 percent to a median of $218,200 for all of this year and hold essentially even in 2008 at $218,300.
Some markets are still going strong, such as Austin and Raleigh, while others are showing early signs of recovery, like Denver and Boston,” Yun said. “However, a vast portion of the nations mid section is underpriced in relation to income, and prices in some markets could rise notably with good local job gains.”
A caveat: A significant rise in foreclosures in some areas could delay this recovery.
New-home sales will probably total 796,000 in 2007 and 693,000 in 2008, below the 1.05 million in 2006. The NAR sees “no real improvement” for new homes until 2009.
Because builders have “rightly made” drastic cuts in production; housing starts, including multifamily units, hit1.35 million in 2007and are forecast at 1.14 million in 2008, down from 1.80 million in 2006. The median new-home price is estimated to drop 1.6 percent to $242,500 in 2007 before rising 0.4 percent to $243,600 in 2008.
Contrary to perceptions, conventional mortgages are widely available at favorable interest rates for the bulk of home buyers, Yun said. The pricing and availability of jumbo mortgages has improved, and FHA loans for home purchases up 58 percent in the third quarter are replacing subprime mortgages to serve the needs of low- and moderate-income buyers.
The 30-year fixed-rate mortgage should rise slowly to the 6.6 percent range by the end of next year, although cuts in the Fed funds rate will help short-term interest rates.
Yun remained guardedly optimistic in his report. Home buyers in it for the long haul nearly always come out ahead in building wealth. Given the leverage in purchasing a home, the average return on a 5 percent downpayment over 10 years is usually three to five times greater than stock market returns, he said. When people compare investment returns, they often overlook the power of leverage in the housing market.
Yun said a $10,000 downpayment on a median-priced home, at a typical appreciation rate of 5 percent, would be worth $110,000 after 10 years. That same amount invested in the stock market for the same amount of time, assuming 10 percent annual appreciation, would be worth $23,600.
Thats why housing is the best long-term investment most families ever make the longer you own, the better your investment, he said.