Existing-home Sales Flat for Now

The volume of existing-home sales is expected to hold steady through late spring, with a gradual recovery during the second half of the year as the mortgage situation improves in high-cost areas, according to the latest forecast by the National Association of Realtors.

Lawrence Yun, NAR chief economist, said many buyers have been waiting for higher mortgage loan limits. “The higher loan limits for both FHA and conventional loans will increase consumer choice and provide greater access to lower interest rate mortgages in high-cost regions,” he said. “Therefore, a notable rise in home sales can be anticipated in the second half of the year.”

The Pending Home Sales Index (PHSI), a forward-looking indicator based on contracts signed in January, held at a stable level of 85.9, unchanged from December, but was 19.6 percent below the January 2007 reading of 106.8.

The PHSI in the West jumped 13.0 percent in January to 93.8 but remains 12.7 percent below a year ago. In the Midwest, the index rose 0.6 percent to 85.2 but is 13.3 percent lower than January 2007. The index in the Northeast declined 4.1 percent in January to 69.6 and is 28.0 percent below a year ago. In the South, the index fell 6.1 percent in January to 89.5 and is 23.8 percent below January 2007.

Existing-home sales are forecast to remain flat around an annual level of 4.9 million in the first half of the year before improving to a 5.8-million pace in the second half. With a weak first half, total sales for 2008 are projected at 5.38 million, but are then seen to rise 3.5 percent to 5.60 million in 2009. The aggregate existing-home price is projected to decline 1.2 percent to a median of $216,300 this year, and then increase 3.5 percent to $223,800 in 2009.

House Prices

The housing bubble has not only burst but it is fully deflated, setting the stage for a mild recovery, according to a study published by SMR Research Corp.

The recovery, which SMR predicts would begin prior to year-end 2008, is likely to be gradual, with house prices merely firming up or increasing slightly, rather than returning to the strong growth they showed from 2002 to mid-2006, the firm said.
SMR specializes in mortgage and home equity loan industry research and claims to have been among the first to declare (in 2002) that a housing price bubble existed, defined as prices rising faster than consumer incomes. In a 2004 study, SMR forecast that a “perfect storm” in credit quality would cause an explosion in foreclosures within two years.

Stuart A. Feldstein, SMR president, says he expects a skeptical reaction to the recovery forecast. “Our prior forecasts were accurate but widely disbelieved when issued,” he noted.

“Homes are now affordable again,” Feldstein says. “Consumer psychology is the biggest remaining hurdle to recovery.”
The recovery in housing will be tempered by three negatives, SMR says. First, borrowers with low credit scores may be unable to participate. Second, existing-home owners who owe more money than their homes are worth may find it difficult to move until prices firm up. Third, there is another type of housing “bubble” that may still exist, SMR says. It is the difference between home purchase down payments and household savings.

Real Estate

RealtyTrac’s 2008 January Foreclosure Market Report shows foreclosure filings — default notices, auction sales notices and bank repossessions — were reported on 233,001 properties during the month, an increase of 8 percent from the previous month and an increase of nearly 57 percent from January 2007. RealtlyTrac is an online marketplace for foreclosure properties