Home Sales, Prices to Pick Up In Second Half of 2008, Says NAR Chief Economist

Home sales and prices throughout most of the country are poised for improvement in the second half of 2008, and the recovery will vary by market, Lawrence Yun, chief economist for the National Association of Realtors® said during NAR’s Midyear Legislative Meetings & Trade Expo.
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More than 9,000 Realtors and guests attended the conference that ran through Saturday.

Middle-America cities that performed evenly over the past few years - like Cincinnati, Milwaukee and the Kansas City, Mo., area - are likely to experience home price gains in the 20 to 30% range over the next five years, while markets like Miami, Las Vegas and Phoenix could see prices go up as much as 50% during that time period, Yun said.

Yun blamed most of the softening of the housing market over the last year on the “subprime mess,” where consumers with blemished credit records got loans they couldn’t afford when the interest rates reset to higher levels.

“In fact, if you look at where home prices fell the most, it’s the markets were subprime loans were prevalent,” Yun said. Cape Coral, Fla.; Detroit; Las Vegas; Miami; Orlando, Fla.; Phoenix and Riverside, Calif. were among the cities with a high percentage of subprime lending and where the markets suffered the biggest downturns, he explained.

“It’s important to keep things in context,” he said. “While much of the media is focusing on the fact that the rate of foreclosures doubled this year from historic averages, the foreclosure rate has gone from 1 percent of all homeowners with mortgages to 2 percent. Foreclosures are being driven principally by subprime loans.”

He further explained that more than half of today’s foreclosures are concentrated in the subprime market. The great majority of homeowners are making their mortgage payments on time.

Now that the subprime market has dried up, and loans insured by the Federal Housing Administration and those purchased by Fannie Mae and Freddie Mac are making a comeback, the housing markets will strengthen and prices are likely to begin a steady uptick in the coming months, Yun said.

Yun urged the Congress and White House to enact NAR-supported legislation to modernize FHA programs, reform regulation of the government-sponsored enterprises (Fannie Mae and Freddie Mac), establish a first-time home buyer tax credit, and make the temporary increases to the conforming loan limits established by the Economic Stimulus Act of 2008 permanent.

“These measures would quickly stabilize the housing markets and get fence-sitters into the market to buy homes,” Yun said.

“There are many reasons for people to get into the housing market today, and very few reasons not to. With the plentiful supply of homes for sale at affordable prices, interest rates approaching 40-year lows, and the strong track record of housing as a good long-term investment, conditions are ripe for buyers,” he added. “Those are the facts, plain and simple.”

As for a recession, it’s not happening, Yun said. “A slowdown, yes, but the definition of a recession is two consecutive quarters of negative GDP growth. It’s not in the cards - no matter how you look at it.”