While all the numbers aren't in yet, local Realtors are reporting that their winter inventory overhang is selling. Buyers are starting to respond to continuing low interest rates, falling prices and smorgasbord inventories in buyer's markets across the country. Could these robins be heralding a spring comeback in housing?
Existing homes should fare well, but new homes will lag, says National Association of Realtors Chief Economist, David Lereah.
"After reaching what appears to be the bottom in the fourth quarter of 2006, we expect existing-home sales to gradually rise all this year and well into 2008," he said. "New-home sales should continue to slide, but we look for that sector to turn around later in the year. When you put it all together, home sales may appear weak in comparison with the record surge in 2005, but they will be sustained at historically high levels that are in line with long-term demand."
Recently, the NAR announced that existing-home sales reached the third highest total on record, 6.48 million homes sold in 2006, and forecasts sales to soften only slightly to 6.44 million in 2007, with sales improving to 6.68 in 2008. New-home sales, following a fourth-best 1.06 million in 2006, are projected to decline below a million to 961,000 this year and then rise to 971,000 in 2008. Housing starts are likely to total 1.52 million in 2007, down from 1.80 million units in 2006, and then increase to 1.56 million next year, says NAR.
Existing home sellers can move with the markets faster than builders. They can lower prices and add improvements, whereas builders don't tend to provide incentives until inventory is hanging around. "When new home demand begins to catch up with supply, builders will slowly increase construction -- probably in the second half of this year," Lereah predicts.
NAR believes that mortgage interest rates will rise this year, but well below the original forecasts for 2006 at 7 percent. The 30-year fixed-rate mortgage is forecast to rise to 6.7 percent by the second half of the year.
"Mortgage interest rates remain favorable, and a gradual rise means potential buyers have some time to weigh purchase decisions," Lereah said. "When existing-home supplies become more balanced between buyers and sellers this spring, we'll see some modest price gains."
NAR expects prices to grow 1.9 percent to $226,200 in 2007, after rising only 1.1 percent in 2006. That could be the second year that home prices fail to meet and/or beat inflation since 1968 when the NAR first began keeping track. Inflation, as measured by the Consumer Price Index, is projected at 2.0 percent this year, down from 3.2 percent in 2006, while growth in the U.S. gross domestic product is likely to be 2.8 percent in 2007, down from 3.4 percent last year.
One of the benefits of owning a home is its hedge against inflation, but keep in mind, these are national averages. Individual metros may be faring better or worse, due to local economies and other reasons.
