Home sales forecast brighter in ‘07
WASHINGTON – March 12, 2007 – Anyone selling a home in the past year has likely suffered through some pretty stormy markets, but economists say a break in the clouds may be on the way.
That’s because since the highly anticipated “real estate bubble” began deflating in mid-2005, has been losing air for the past year and a half and may finally be out of air. And while some markets suffered through some deep slumps, forecasters are now predicting the worst may be over.
“It appears we are getting very close to bottom,” says David Lereah, chief economist for the National Association of Realtors.
Lereah is one of several economists who agree that sales data show the national existing home sales market is on the verge of regaining ground.
“Sales have hovered for the last four months, scratching bottom and then coming up, scratching bottom and coming up again. We are comfortable this is now the bottom,” he says.
But before you put away that umbrella, it might be best to check your local forecast; scattered showers may persist in certain markets for at least another year.
Over the past few months, Lereah says 75 percent of the nation’s housing markets have expanded. Unfortunately the ones that are still falling are posting losses large enough to bring the national numbers down with them.
“So, you can’t generalize. You can’t say ‘We are in this sharp recession,’ when it is only 25 percent of the markets that are losing ground,” Lereah says.
What makes the current housing slump so hard to forecast is that the factors driving the contraction are different than those driving past slowdowns, says Dave Seiders, chief economist for the National Association of Home Builders.
“You have to put this in context,” he says. “This is not a downswing connected to a recession. This one is special because the drivers are unusual.”
In previous contractions, the entire economy hit a bumpy patch, and mortgage rates were in double digits, Lereah says.
“This is not the case now,” he says.
The primary problem now plaguing the housing market is one of oversupply, rather than a general economic malaise. In general, the markets that are suffering the most now are the ones that benefited the most during the run-up in prices.
“Markets that boomed in the last five years boomed too much, and now they are coming down,” Lereah says.
Prices were high, and builders responded by adding a flood of new homes to the market. When prices continued to rise, investors saw potential and bankrolled even more homes. When buyers stopped buying, the markets that flew the highest had the farthest to fall. Molly R. Boesel, a Fannie Mae economist, wrote in a February commentary that sales will likely post another negative year in 2007, but that most of the decline is expected from a reduction in investor demand. Consumers, on the other hand, will likely jump back into the market.
The Federal Open Market Committee of the Federal Reserve agreed when it issued its Jan. 31 statement. In that statement, governors said they were encouraged by “tentative signs of stabilization” in the housing market.
“These are the first stages to getting the markets back into balance,” Seiders says.
But even as consumers get back in a buying mood, housing markets won’t necessarily spring back to previous heights. Part of the reason is because there is still a large inventory on the market, Lereah says.
One way economists rate homes sales is by calculating how many months it would take to sell all the homes listed for sale at the current buying rate. At last count, Lereah says it looked like there were between 6.8 months and 7 months worth of homes sitting on the market right now. He says that number will likely fall to between 6.6 months and 6.5 months worth by year end. But that is still above the 5.5- to 6-month inventory that signals a balanced market.
Looking foreword, Lereah says 2007 will likely see an additional 1 percent fall in sales compared with 2006 numbers, meaning sales will have hit bottom and begun to rebound by year-end. “We are not looking for a big expansion, but it will be an expansion – a sluggish expansion,” he says.
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