Given that it is now September, and in most communities, the residential selling season is March to October, the forecast by the National Association of Realtors, that the housing recession will continue into 2008, hardly merits the term “forecast.” It’s closer to being facts on the ground. NAR is optimistically calling for a bottom in 1Q 2008 and housing prices will increase in 2008. Note that seems hard to justify given the large number of adjustable rate mortgage resets in 2008. Accordingly, Moody’s thinks the housing recession will continue till 2009. However, NAR did increase its estimate for how much housing sales would fall this year,
The National Association of Realtors reduced its home sales forecast for the ninth time this year and said the housing slump will extend into 2008.
Existing home sales will fall 8.6 percent in 2007, exceeding the 6.8 percent drop estimated a month ago. New-home sales probably will decline 24 percent on top of an 18 percent fall in 2006, the Chicago-based trade group for 1.3 million real estate brokers said today in a statement.
The two-year housing decline is worsening amid a surge in credit costs and the collapse of more than 90 mortgage companies after defaults by homeowners. Federal Reserve policy makers, who meet next week, said at their last session “tighter” credit is putting the U.S. economy at risk.
“There’s been an unusual hit to home sales, starting in March when subprime problems emerged and more recently when problems spread to jumbo loans,” Lawrence Yun, an economist for the group, said in the forecast. Jumbo loans are those over the $417,000 limit guaranteed by Fannie Mae and Freddie Mac and are typically given to borrowers with good credit.
New home sales won’t reach a bottom until the first quarter of 2008, the organization said. A month ago, the Realtors said the low point would be at the end of this year.
Existing home sales and prices, as well as new home prices, will increase in 2008, the real estate group said. That outlook is more upbeat than an Aug. 30 forecast by Lehman Brothers Holdings Inc. economists Michelle Meyer and Ethan Harris and many homebuilding analysts.
“To say home prices are going to go up next year, you have to wonder what the NAR is thinking,” said Alex Barron, an analyst who follows homebuilders for Wayzata, Minnesota-based Agency Trading Group Inc. “We’re going to see a drop in volume and prices.”
The Realtors forecast came three weeks after the Fed cut the interest rate it charges banks by half a percentage point to 5.75 percent to try to stem the liquidity crisis caused by a surge of subprime mortgage defaults. President George W. Bush on Aug. 31 directed the Federal Housing Administration to guarantee loans for some delinquent low- and middle-income borrowers.
The U.S. housing decline may last as long as four years until 2009, Moody’s Investors Service said in a report yesterday. That would match the length of the downturn that ended in 1991. Home sales will take a “substantial hit” in the next several months, Moody’s said.
“Even prime-qualified borrowers have found it harder to get a mortgage,” Joseph Snider, Moody’s senior credit officer, said in the report.
About 14 percent of domestic banks have raised standards for mortgages to their best-rated customers and 56 percent have made it more difficult for people with limited or poor credit to get loans, according to a Federal Reserve survey of senior loan officers in mid-July.
The average U.S. rate for a 30-year adjustable mortgage reached a six-year high of 5.84 percent during the week of Aug. 30, according to Freddie Mac, the No. 2 mortgage buyer.
The median resale price probably will slip 1.7 percent to $218,200 this year, the Realtors’ said. That would be the first national decline since the Great Depression in the 1930s, according to Yun. The new-home median selling price probably will fall 2.2 percent to $241,100, the report said.
Next year, home resales may rise 5.9 percent to 6.27 million, the first gain in three years, the Realtors said. Sales of new houses probably will fall to a 13-year low of 741,000 in 2008, the third consecutive annual decline, the forecast said.
Existing home prices may rise 2.2 percent in 2008 and new- house prices may gain 1.7 percent, they said.
“The Realtors keep splicing a little more off their outlook to make it more gloomy, but they are still more optimistic than we are,” Meyer of Lehman said today in an interview. “The data from the mortgage and credit markets is all pretty dismal.”….
“The only way that the new home market can basically recover is for the existing home market to bottom first,” said Barron of Agency Trading.
Barron expects prices for new and existing homes to drop next year as the glut of unsold homes and foreclosed homes force sellers to lower prices. The difficulty consumers are having obtaining mortgages may also spur sellers to lower prices to make sales.
“Home prices need to come back down to more affordable levels so that people can take that inventory off the market,”
Barron said in an interview. “Everything I see points to lower prices, much lower prices.”