Existing-home sales are projected to trend up in 2008, with pending home sales showing a slight near-term rise, according to the latest forecast by the National Association of Realtors®.  However, a recovery for new-home sales is unlikely before 2009.

Lawrence Yun, NAR chief economist, said the worst part of the credit crunch has already worked its way through the data.  “The unusual mortgage disruptions that peaked in August were clearly seen in lower home sales that were finalized in September and October, so the market was underperforming,” he said.  “Now that mortgage conditions have improved, some postponed activity should turn up in existing-home sales over the next couple of months, and I expect sales at fairly stable to slightly higher levels.”

The PHSI in the Northeast jumped 16.0 percent in October to 80.6 but is 11.1 percent below a year ago.  In the West, the index rose 8.4 percent to 87.3 but is 16.9 percent lower than October 2006.  The index in the Midwest slipped 1.4 percent in October to 85.5 and is 11.7 percent below a year ago.  In the South, the index dropped 7.8 percent in October to 91.6 and is 25.3 percent below October 2006.

“The improvement in the Northeast reaffirms a trend apparent for some months now that shows signs of recovery, noteworthy because that was the first region to slump, and the gain in the West indicates some easing of interest rates for jumbo loans,” Yun said.  “Lawmakers need to understand that raising the loan limits on FHA and GSE-backed conventional loans will markedly improve mortgage availability.”

Existing-home sales are likely to total 5.67 million this year, the fifth highest on record, rising to 5.70 million in 2008, in contrast with 6.48 million in 2006.  Existing-home prices should be down 1.9 percent to a median of $217,600 for all of 2007, and then rise 0.3 percent to $218,300 in 2008.

“Home price growth in the vast affordable midsection of America will help raise the national median existing-home price slightly in 2008.  I then expect price appreciation to return to more normal patterns in 2009, perhaps rising one or two percentage points above the rate of inflation,” Yun said.

“Even with a modest decline in the national aggregate price this year, it’s important to keep in mind that nearly two-thirds of the metro areas in the U.S. are showing price increases,” he said.  “The apparent disparity results from fewer sales in high-cost markets, so a change in the mix of sales is dragging down the national median home price.”

Areas showing healthy price gains include disparate markets such as Gary-Hammond, Ind.; Binghamton, N.Y.; Corpus Christi, Texas; and Spokane, Wash.  “We can’t emphasis enough how much local conditions vary, even within a given area, so it’s important for consumers to make decisions based on local market conditions.”

New-home sales are forecast at 788,000 this year and 693,000 in 2008, down from 1.05 million 2006; no sustained improvement is seen for new homes until 2009.  Because builders have correctly adjusted production, housing starts, including multifamily units, will probably total 1.36 million this year and 1.16 million in 2008, down from 1.80 million last year.  The median new-home price is projected to drop 3.0 percent to $239,100 for 2007, and then decline another 0.2 percent to $236,600 in 2008.

The 30-year fixed-rate mortgage is estimated to rise slowly to the 6.4 percent range by the end of 2008, with additional cuts in the Fed funds rate lowering short-term interest rates.

Growth in the U.S. gross domestic product (GDP) should be 2.1 percent in 2007, down from a 2.9 percent growth rate last year; GDP growth is forecast to improve to 2.4 percent in 2008.

The unemployment rate is likely to average 4.6 percent for 2007, unchanged from last year, but rise to 5.0 percent in 2008.  Inflation, as measured by the Consumer Price Index, will probably be 2.8 percent this year and 2.7 percent in 2008, down from 3.2 percent in 2006.  Inflation-adjusted disposable personal income is estimated to grow 3.1 percent this year, the same as in 2006, and then grow 2.2 percent next year.

Part 1: Real Estate’s Still Local:  
      Brenda Casserly - President and CEO ERA Real Estate - www.era.com

The real estate business has been a gift and a pleasure for me. The opportunity to have been involved in helping people achieve their dream of homeownership has offered me some of the most enjoyable and fulfilling experiences of my life. I can also tell you that one of the most frustrating aspects of my position is continuously battling misleading stories regarding the health of our industry, which has directly caused unfounded anxiousness with our consumers. Primarily, this anxiousness is created by a misperception that we have a national real estate market. Real estate is local, and there is no national real estate market as many news stories have reported. However, properties continue to be sold in all markets.

One of the largest reasons for this misperception is that the media is comparing today’s market to the incredible record results we saw peak in 2005. What is being overlooked is that this year there are historically high volumes of home sales taking place. According to NAR and Fannie Mae, approximately 5.6 million existing home sales will still occur in 2007, along with approximately 800,000 new home sales. Speculative inventory is on its way to being corrected, which should result in more balanced levels of homes on the market. This, coupled with interest rates that are comparable to a 40-year low and reports of positive employment trends, portrays a more accurate picture of the real estate environment.

As stewards of this industry, it is our obligation to effectively communicate the actual health of the industry to our consumers. The reality is that housing has always been a solid long-term investment. According to NAR statistics, median home prices have had a 6.4% compound annual growth rate from 1972 to 2006, and existing home sales units have grown an average of 3.2% during the same time period. The number of U.S. households is expected to increase 15% during the next decade at a rate of 1.46 million new households each year, which should continue to fuel an ongoing demand for housing.

Consumer confidence has been shaken, but those real estate professionals who excel in their field have an incredible opportunity. The media will many times fail to acknowledge and report on local trends. Today, more than ever, real estate professionals must be ready to clearly communicate the actual local market conditions to their consumers. Those who are best equipped to do so will be in a position to succeed.

Total existing-home sales - including single-family, town homes, condominiums and co-ops - rose 0.4% to a seasonally adjusted annual rate1 of 5.00 million units in November from an upwardly revised pace of 4.98 million in October, but are 20.0% below the 6.25 million-unit level in November 2006.  Lawrence Yun, NAR chief economist, said the market appears to be stabilizing.