Home Sales Expected to Take Gradual Upturn

Home sales are projected to move in a relatively narrow range with a gradual upturn becoming more pronounced by the end of the year, according to the latest forecast by the NATIONAL ASSOCIATION OF REALTORS®.
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“Overall housing levels are historically strong, but sales remain sluggish compared to the recent boom,” says Lawrence Yun, NAR senior economist. “It’s important to keep in mind that all real estate is local, and many markets are expected to have higher sales and strengthening prices during the second half of this year.”

What to Expect

NAR makes the following projections on the housing market:

    • Existing-home sales: projected to total 6.18 million in 2007 and 6.41 million
      next year, in contrast with 6.48 million in 2006.
    • New-home sales: forecast at 860,000 this year and 901,000 in 2008, down from
      1.05 million last year.
    • Housing starts: likely to total 1.43 million units in 2007 and 1.49 million
      next year, below the 1.80 million recorded in 2006.

Meanwhile, the 30-year fixed-rate mortgage is likely to increase to 6.6 percent in the third quarter and then hover at that level through 2008.

The national median existing-home price should ease by 1.3 percent to $219,100 in 2007, before rising 1.7 percent next year. The median new-home price will probably fall 2.3 percent to $240,800 this year, and then grow by 2.6 percent in 2008.

“We continue to experience a temporary distortion in comparing median existing-home prices,” Yun says. “Because the sales volume has shifted from many high-cost areas to moderately priced markets, we’re not getting a true apples-to-apples comparison. When you look at other measures, such as this week’s price index from Freddie Mac which is based on repeat sales, overall home prices are rising slowly.”

Other factors to take into account that affect housing include:

    • Gross Domestic Product: growth in the U.S. GDP is estimated at 2 percent this
      year, lower than the 3.3 percent growth in 2006. Yun forecasts GDP to grow 3
      percent in 2008.
    • Unemployment rate: projected to average 4.6 percent in 2007, unchanged from
      last year.
    • Inflation: expected to decline to 2.5 percent this year, down from 3.2 percent
      in 2006. Inflation-adjusted disposable personal income is likely rise 2.8
      percent this year, compared with a 2.6 percent increase in 2006.

Buyers Need to Change Perspective

Buyers today need to have a traditional view of housing as a long-term investment, Yun says. “That investment generally will build a nice nest egg over time, especially if they use a traditional mortgage instrument that reduces debt,” Yun adds.

“Because of reductions in home sales and new home construction, the economy will expand at a subpar pace in 2007,” Yun says. “As housing market conditions improve going into 2008, the economy will reach back to its growth potential next year.”