February 2010 Market Overview
What a difference a year makes. As poor as the housing market was in January 2009, a year of aggressive subsidies and sluggish economic improvement has produced some optimism going into the New Year.
At the annual January International Builders Show in Las Vegas this past month, a panel of leading economists suggested that the housing recovery would be slow but it is definitely underway.
But there are some caveats – higher foreclosures, according to David Berson, chief economist for PMI Group, a mortgage insurance company. After home prices fell 13% in 2009, he says that home prices will fall another 5% in 2010, but that prices will flatten by year end.
Freddie Mac Chief Economist Frank Nothaft is slightly more optimistic, predicting that home prices will fall 3% in 2010. On a brighter note, he believes that mortgage interest rates on benchmark conforming loans (30-year, fixed-rate) will remain under 6%.
The Builder Viewpoint
The National Association of Builders forecast from Chief Economist David Crowe is a modest 7% higher growth for pre-owned homes, but the depressed new home market will go up by more than a third to 700,000 units sold.
This is good news considering that new home sales were down 11% from October to November 2009, despite the expansion of the first-time and move up buyer tax credit. The result of the report was pessimism on the part of builders – their outlook index fell to 15, the lowest level in months. Any reading below 50 suggests a negative outlook on the housing market.
Builders still face a lot of competition from foreclosures and a much higher and more flexibly-priced pre-owned market. Homes under construction for December were at a record low (511,000 for the year) as well as the number of homes completed (796,000, down 29%) were also at record lows. However, permits to build rose 10.9% to an annual rate of 653,000, and the level of starts, or groundbreaking, was the highest in 14 months.
The December 2009 UCLA Anderson Forecast suggested that the national economy is on a “modest growth path that will be accompanied by extraordinarily high rates of unemployment.”
With mortgage-backed securities purchases by the federal government ending in February 2010, and home purchase subsidies ending in April 2010, mortgage interest rates are already beginning to rise above 5% for benchmark 30-year, fixed-rate conforming loans.
Subsidies are ending because of evidence the economy is improving. Job losses that are contributing to distressed home inventories appear to be easing. The Labor Department announced on December 24th, 2009 that initial job loss claims were the lowest since September 2008. In January, the jobless rate remained steady at 10%. Job creation is expected to be slow in 2010.
While interest rates remain below 6%, home sales are expected to continue to rise. However, prices still face considerable headwinds – streams of inventory in distressed homes resulting from job loss, and rising interest rates.
For that reason, First American CoreLogic’s LoanPerformance Home Price Index predicts that home prices in 45 of the largest metros will show a modest annual gain by October 2010, but not before falling another 4.2%. The index calculates prices will bottom in March 2010.
Blanche Evans is CEO of Evans Emedia, Inc. and publisher of The Evans Ezine. As an award-winning journalist, Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and twice recognized as one of the industry's most "Notables."
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