The home real estate market is expected to begin a modest recovery in 2008, according to the National Association of REALTORS® — a group that welcomes the good news about homes for sale — but there are other indications that NAR has solid reasons for its optimism.
Sales of New Homes Fuel National Economy
The Federal Reserve Bank has repeatedly lowered interest rates, the President got involved and paved the way to relief for troubled homeowners who are at risk of losing their homes to get special refinancing and avoid foreclosure, banks have adjusted their lending restrictions to better help qualified borrowers and home values recently showed a rise in most states, all signs that the housing market may indeed be slowly turning around for the better.
Nearly 6.5 million homes will be sold nationwide in 2007. New home sales will account for more than $193 billion in 2007, while sales of existing homes — about seven out of every eight home sales — will be $1.237 trillion. So you get an idea of how much a robust housing market can sustain and dictate the direction of the U.S. economy.
New Homes For Sale
2008 will be a year of consolidation and recovery in the new home market. Home builders admittedly overbuilt and must now liquidate excess inventories of brand new homes, sometimes at below-market prices. NAR predicts that 796,000 new homes will be sold in the U.S. in 2007, with the number dipping to 693,000 in 2007. New home sales topped 1 million units in 2006.
Housing starts are forecast at 1.35 million in 2007, with 1.14 million housing starts projected in 2008. Those numbers are both down from 1.80 million housing starts in 2006. The median price of a new home in 2007 is expected to be about $242,500, or about $4,000 less than in 2006, although the price is projected to rise about $1,100 in 2008.
Existing Homes For Sale
NAR predicts that 5.67 million existing homes will be sold nationally in 2007, a decline of about 810,000 sales from 2006, but home sales should show a modest gain in 2008, about 20,000 more homes than this year. The national median price for an existing home is $218,200 in 2007 and expected to gain only $100 for 2008. But these tiny gains are better than the past two years when the number of sales and sales prices fell.
Recent Economic History
Not long ago, homes for sale in desirable markets were snapped up the day they went on the market. We heard stories of would-be buyers lining up around the block and people bidding more than the asking price — and then getting outbid — during those days, two, three or four years ago. But that buying frenzy was driven by real estate developers, real estate investors, real estate speculators and “flippers,” not consumers who merely wanted a place to live, and fed by home builders who continued to turn out new homes and erect condos in the most desirable areas at record rates.
With the demand seemingly rising, the builders added to the growing supply. Lenders followed along, relaxing their rules so that everybody could ride along and the nation’s economy soared. But when it came time to pay up, some home buyers realized they were overextended. The lenders realized they were on the hook for loans on homes that were worth less than the amount owed on the property.
The resulting national housing slump has been called a “correction” by some economists. Coupled with the turmoil in the subprime mortgage market, sales of both new homes and existing homes have fallen in 2007, compared to the past few years. Many builders have slowed their construction pace as their inventories have risen. Good news for home buyers: Sellers have become more realistic when deciding on an asking price.
Buyer Confidence Key to Recovery
As the credit crunch subsides, a housing recovery is contingent on buyer confidence. “The pace of recovery is a bit uncertain because we are dealing with the psychological element or the confidence issue of buyer,” NAR vice president of research Lawrence Yun said on Nov. 13. Many home buyers are waffling about “whether they should buy now, (or) if they should postpone” until next year, Yun said. In other words, some potential home buyers are holding out until the housing market reaches bottom, which is hard to tell and usually not recognizable until it has already begun an upswing. But a pent-up demand for housing should fuel the recovery, Yun said.
What’s in doubt is exactly when the housing recovery will begin.
Local Markets
In some states and metropolitan areas, the housing market has remained strong and in others where the housing market did slump, a recovery has already begun.
There’s an old adage that all real estate is local and the current housing economy supports the cliche. Conditions in local housing markets vary. NAR’s Yun noted that Austin, Texas and Raleigh, N.C. are strong real estate markets, while Denver and Boston are showing early signs of recovery. Things are slow in Detroit and Sarasota, Fla., but just because some places are in decline and pulling down the national forecast, you have to remember that the entire country is not one big, bad market.
Most experts agree that a true housing recovery will happen as listings of homes for sale start to fall — which means sellers are embracing reality and settling for a deal that might be not quite as good as they expected — and the number of days that existing homes are on the market also starts to drop, which is a sign that more home buyers are entering the real estate market.
Home Prices Appreciate in Most States
September home values went up in two-thirds of the nation compared to one year ago, according to a study released Nov. 19. Hawaii led the way, with the average home gaining more than 10 percent in value (15 percent in the Honolulu area). Home values in North Carolina, Alabama, Maine, Utah and Wyoming climbed between 5 and 10 percent and 27 states saw a rise of from 0 to 5 percent, including Texas, New York and Illinois.
Seventeen states saw home values drop. California took the hardest hit, with home values dropping more than 10 percent. Florida, Louisiana, Arizona and Nevada saws dips of 5 to 10 percent.
Government Action
On Halloween, the Federal Reserve cut its short-term interest rates by a quarter of a point to 4.50 percent, only six weeks after it had cut the rate a half point. The rate cuts are meant to stimulate the economy by making it easier for banks to borrow and lend money.
A day later, Congress asked President Bush to accelerate efforts to hold off a flood of loan foreclosures, many by homeowners who couldn’t afford steep increases in their monthly home payments after adjustable mortgages had reset to higher rates.
The Bush administration responded quickly by announcing new programs designed to rescue homeowners who had fallen behind by offering government-guaranteed (FHA) refinancing programs.
Credit Shift
By now nearly everyone has heard of the subprime mortgage crisis. Its effects have contributed to the housing slowdown, but qualified home buyers shouldn’t worry about it because they were never in the market for such loans, which are mostly offered to buyers with poor credit who must agree to higher interest rates.
In the wake of the subprime crisis, mortgage standards have tightened across the board, but homebuyers who have good credit and either savings, equity in an existing home or other assets should be excited because they are the kind of customer the banks, lenders and mortgage companies are now targeting, instead of the speculators, investors and flippers of the past.
NAR Marketing
NAR is engaged in a $40 million multi-media campaign to push real estate and new home sales. NAR has aired some clever TV spots, but over the past few weeks, full-page newspaper ads published in major newspapers such as USA Today are promoting the family values angle of home ownership (with a smiling kid gliding toward you on a swing-set) along with the long-term investment value of home ownership:
“Buying a home is a great way to build long-term wealth. There are some other important dividends, too.”
Then the kid swings into your lap.
“You shouldn’t postpone (a decision to buy) any longer” because “”interest rates are still at historic lows” and “on average, the value of a home nearly doubles every 10 years,” NAR declares, among other convincing enticements.
Economists: It’s a Buyer’s Market
Now is a great time to buy a new home, according to economists, due to the confluence of lower prices, oversupply and credit reform. If the recovery is coming, prices will start to increase. Some home buyers might wait too long.
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