NAR - Soft Existing-Home Sales Expected Near-Term But to Rise Midsummer

A flat pattern in home sales activity should continue for the next couple months before improving over the summer, according to the latest forecast by the National Association of Realtors®.
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Lawrence Yun, NAR chief economist, said the extent of an expected recovery hinges on better access to affordable loans. “Things are beginning to improve, but the availability of affordable mortgages is uneven around the country and sometimes within metropolitan areas,” he said. “As anticipated, we continue to look for a soft first half of the year, for both housing and the economy, before notable improvements in the second half. Some time is needed for FHA and new conforming jumbo loans to become widely available.”

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in March, edged down 1.0% to 83.0 from a downwardly revised level of 83.8 in February, and was 20.1% lower than the March 2007 index of 103.9.

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said additional costs in many markets are hindering a recovery. “Our members are telling us that more buyers are looking at homes but are slow in signing contracts, and that’s contributing to the weakness in pending home sales,” he said. “In many cases buyers are waiting for greater access to affordable credit, especially in higher cost areas, but some are disappointed with what appears to be unnecessarily restrictive lending requirements. The good news this week is there is some discussion toward relaxing some of the burdensome lending practices.”

The PHSI in the Northeast jumped 12.5% in March to 80.8 but remains 15.4% below a year ago. In the South, the index slipped 0.1% to 84.9 and is 26.7% lower than March 2007. The index in the West declined 1.4% in March to 91.2 and is 9.5% below a year ago. In the Midwest, the index fell 10.4% in March to 74.1 and is 22.3% below March 2007.

Existing-home sales are projected to rise from an annual pace of 4.95 million in the first quarter to 5.82 million in the fourth quarter. For all of 2008, existing-home sales are likely to total 5.39 million, and then rise 6.1% to 5.72 million next year. “Although more than half of local markets are expected to see price growth this year, the aggregate existing-home price will decline 2.4% in 2008, driven by a relatively few markets that are very oversupplied,” Yun said. The median price is forecast at $213,700 this year before rising 4.1% to $222,600 in 2009.

Some areas already are seeing sales increases, underscoring that all real estate is local. In March, unpublished snapshot data shows sales in Bakersfield, Calif., and Jackson, Miss., were higher than a year ago. At the same time, price gains were noted in markets such as Buffalo-Niagara Falls, and Cedar Rapids, Iowa. On May 13, NAR will report first-quarter data on metropolitan area home prices, covering about 150 metro areas, and state home sales.

“Although some market adjustments are necessary, a downward overshooting of the housing market would cause unnecessary loss in economic output, income and jobs,” Yun said. “It is critical to stimulate housing demand by inducing fence sitters back into the market. A home buyer tax credit on any home purchase would accomplish that.”

New-home sales are expected to fall 30.9% to 536,000 this year before rising 10.1% to 590,000 in 2009. Housing starts, including multifamily units, will probably drop 29.5% to 955,000 in 2008, and then rise 1.3% to 967,000 next year. The median new-home price is estimated to fall 3.7% to $238,000 this year, and then rise 5.4% in 2009 to $250,900.

The 30-year fixed-rate mortgage is likely to rise gradually to 6.2% by the end of the year, and then average 6.3% in 2009. NAR’s housing affordability index is expected to rise 10%age points to 127.0 for all of 2008.

Growth in the U.S. gross domestic product (GDP) should be 1.5% this year and 2.3% in 2009. The unemployment rate is projected to average 5.3% in 2008 and 5.5% next year.

Inflation, as measured by the Consumer Price Index, is seen at 3.4% this year and 2.2% in 2009. Inflation-adjusted disposable personal income is forecast to grow 1.2% in 2008 and 3.0% next year.