Existing-Home Sales to Hold in Narrow Range, Begin Upward Trend
Washington, DC, Feb. 7, 2008 - A continuation of soft market conditions is forecast for existing-home sales in the months ahead, with improvement expected by the second half of this year if loan limits are increased, according to the latest forecast by the National Assn. of REALTORS®.
Lawrence Yun, NAR chief economist, said sales activity is expected to remain soft through the first half of the year despite a generational low in mortgage interest rates. “Household formation was only half of what it should have been last year given the demographics of a growing population and sustained job growth, so there clearly is a pent-up demand from buyers who are on the sidelines,” he said.
“Existing-home sales have moved narrowly since last September, but when the full impact of higher loan limits for conventional mortgages begins to impact the market there is likely to be a notable rise in home sales and prices. If higher limits are enacted very quickly, we’ll see a faster and more meaningful recovery by expanding safe, affordable financing in high-cost areas – that, in turn, would help to stimulate overall economic activity.”
The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in December, slipped 1.5% to a reading of 85.9 from a downwardly revised index of 87.2 in November, and was 24.2% below the December 2006 level of 113.3. “We’re seeing a pattern that is consistent with skimming along the bottom of the cycle, and sales could ease modestly,” Yun said.
The PHSI in the Midwest rose 3.4% in December to 84.9 but is 17.3% below a year ago. In the Northeast, the index slipped 1.7% to 68.9 and is 26.0% lower than December 2006. The index in the South fell 3.0% in December to 96.4 and is 27.0% below a year ago. In the West, the index declined 3.1% in December to 83.9 and is 24.1% below December 2006.
Existing-home sales are projected at an annual pace of around 4.9 million in the first half of this year, rising notably to 5.8 million in the second half, and totaling 5.60 million for all of 2009. The aggregate existing-home price should decline 1.2% in 2008 to a median of $216,300, and then rise 3.2% to $223,200 in 2009.
Subprime Lending Woes Will Continue to Impact Some Market Areas
“Areas with a high prevalence of subprime lending will continue to feel downward price pressure. Where builders have cut construction sharply, and in most areas with improving affordability conditions, we’ll generally see moderately higher home prices,” Yun said.
Current housing conditions vary widely. Preliminary data shows rising home prices in areas such as Rochester, N.Y.; Charleston, W.V.; Waterloo-Cedar Falls, Iowa; and Albuquerque, N.M. Fourth quarter metro area median existing-home prices, showing changes in approximately 150 markets, will be released February 14.
New-home sales are likely to decline 17.7% to 637,000 in 2008 before rising 7.6% to 685,000 in 2009. “Builders will further lower new home construction throughout this year and into 2009 to bring inventory under control,” Yun said. Housing starts, including multifamily units, are estimated to fall 20.1% to 1.08 million this year, and decline another 1.3% to 1.07 million in 2009. The median new-home price is expected to fall 4.3% to $236,300 in 2008, and then increase 5.0% in 2009.
The 30-year fixed-rate mortgage is forecast to rise slowly to the 5.9% range in the fourth quarter, and then average 6.3% in 2009. “Affordability conditions are anticipated to rise 14.2% this year, permitting more people to become homeowners, but buyers should avoid aggressive lenders and not over-stretch to enter the market,” Yun said. NAR’s housing affordability index is expected to rise from 113.0 in 2007 to 129.0 in 2008.
Growth in the U.S. gross domestic product (GDP) is projected at 2.2% in 2008 and 2.7% in 2009. The unemployment rate should rise to 5.4% in the second half of 2008 before averaging 5.2% in 2009.
Inflation, as measured by the Consumer Price Index, is seen at 2.7% this year and 1.4% in 2009. Inflation-adjusted disposable personal income is likely to grow 1.7% in 2008 and 3.5% next year.
The National Association of REALTORS®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.
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*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
The index is based on a large national sample, typically representing about 20% of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 parallels the level of closed existing-home sales in the following two months. There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons.
An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.
Existing-home sales for January will be released February 25; the next Forecast / Pending Home Sales Index will be released March 6. Fourth quarter metropolitan area median existing-home prices will be released February 14.