The Wall Street Journal reports that the National Association of Realtors has cut its forecast for 2007, from a fall in median sale price of 0.7%. The IMF also issued a report cutting its growth estimate for the US from 2.9% to 2.2%, based on the detrioration of the housing market.
This is bigger news than it might seem (and the stock market recognized that, the Dow is down 55 points as of this posting). The NAR, since it represents brokers, has a history of optimistic forecasts and positive spin. For example, if you look at average housing prices from year end 2005 to 2006, there was a 3.4% decline, according to Dean Baker. But the NAR says that sale prices of existing homes rose 1% last year.
Remember, admitting that the market is weak under normal circumstances isn’t helpful to sellers. But we’ve also read complaints from brokers in certain markets, like Palm Beach, that brokers are unable to conclude deals because sellers have unrealistic expectations, and the NAR’s happy talk hasn’t helped. So undue optimism isn’t helpful, and also isn’t credible.
This further begs the question of whether the new NAR forecast is still too optimistic, and I venture that it is. I am told via a comment that foreclosure sales aren’t included in the NAR figures (at least of housing sales, so one can presume in average sales prices also). NAR projects that existing home sales will be down 2.2% this year, and new home sales lower by 14.4%, but the housing market will be back on an upswing in 2008. This quick recovery sounds inconsistent with the reports of high inventory, increased competition from foreclosure sales (a fair portion of which are higher priced properties), and homes withdrawn from the market (implying they will be re-listed when conditions improve).
From the Journal:
A real-estate trade group lowered its forecasts for U.S. home sales this year, while projecting what would be the first annual decline in the median national existing home price since it began keeping records in the late 1960s.
In its latest forecast for the real-estate market, the National Association of Realtors projected that existing home sales will fall 2.2% this year to 6.34 million, compared with its previous forecast of a 0.9% decline. The NAR said new home sales are likely to fall 14.2% to 904,000, compared with the prior forecast of a 10.4% drop.
“As home sales moderate, overall home prices will be essentially flat this year,” said NAR Chief Economist David Lereah.
The national median existing home price will likely slip 0.7% to $220,300 in 2007, following a 1% gain last year, while the national median new home sale price is projected to rise 0.4% to $246,200 this year after gaining 1.8% last year.
The trade group attributed the market softening to tighter lending standards and the fallout from troubles in the subprime mortgage market.
Mr. Lereah said the housing market should still take support from inventories that remain well below levels of the last market downturn in the early 1990s and supplies that are close to balanced in many areas.
As for 2007, the economist said price trends are being distorted for at least the first half of the year by a shift in sales activity to moderately priced regions and away from high-cost ones. “Within given markets, most areas can expect minor price gains,” he said.
The NAR projects modest price growth next year, with the median existing home price expected to rise 1.6% and the median new home price foreseen up 2.0%.
As homebuilders adjust to changing markets, the realtors group projects housing starts will slow further this year to register an 18% decline to 1.47 million, following last year’s 13% decrease. Housing starts are expected to recover somewhat next year, with a projected 5.1% increase.