Housing to gradually improve in 2012, NAR economist says

Friday, November 11th, 2011, 4:12 pm

Gradual improvement in the housing market is expected next year, with existing home sales edging up 4% to 5% and new home sales getting an even bigger boost off this year's record lows, the chief economist of the nation's largest real estate group said Friday.
"Tight mortgage credit conditions have been holding back homebuyers all year, and consumer confidence has been shaky recently," Lawrence Yun, chief economist of the National Association of Realtors, said. "Nonetheless, there is a sizeable pent-up demand based on population growth, employment levels and a doubling-up phenomenon that can’t continue indefinitely."
Yun, who made his comments during the annual NAR conference for real estate agents under way in Anaheim, Calif., projected gross domestic product growth of 1.8% for 2011, rising to 2.2% in 2012 with the unemployment rate declining to 8.7% by the second half of 2012.
Mortgage interest rates, he predicted, would gradually rise from record 2011 lows to 4.5% by the middle of 2012.
"Very favorable affordability conditions will dominate next year as well, which will probably be the second best year on record dating back to 1970. Our hope is that credit restrictions will ease and allow more homebuyers to take advantage of current opportunities."
Existing-home sales are forecast to edge up about 1% this year. Based on NAR’s current projection model, existing home sales would total 4.96 million in 2011. NAR is revising downward existing home sales totals in recent years although it expects little change to previously reported comparisons based on percentage change.
New-home sales for 2011 are projected at 302,000 this year, a record low, with expectations that they will rise about 23% to 372,000 in 2012.
Housing starts are forecast to rise about 8% to 630,000 from 583,000 in 2011.
With falling inventory, the median home price should rise in 2012, he said. "Home prices have yet to show a definitive stabilization pattern in most areas. Still, given an over-correction in prices, there likely will be moderate appreciation in 2012," Yun said.
Richard Peach, senior vice president at the Federal Reserve Board of New York, said the economy continues to disappoint. "Among the significant structural impediments are the legacy of the housing boom and bust, and fiscal contrition at the state and local level."
He promoted moving foreclosures by giving incentives to military servicemembers.
"My idea is to allocate certificates to 2.5 million service members who served in Afghanistan and Iraq that could be used as a down payment on a foreclosed home in the Fannie or Freddie portfolio," he said. This would help to absorb the inventory and stabilize the housing market.


Write to Kerry Curry.
Follow her on Twitter @communicatorKLC.

Housing and Economic Forecast

Housing and Economic Forecast Points to Rising Activity

WASHINGTON, May 12, 2011
Home sales are expected to stay on an uptrend through 2012, although the performance will be uneven with mortgage constraints weighing on the market, according to experts at a residential real estate forum today at the Realtors® Midyear Legislative Meetings & Trade Expo here.
Lawrence Yun, NAR chief economist, said existing-home sales have been underperforming by historical standards and will rise gradually but unevenly. “If we just hold at the first-quarter sales pace of 5.1 million, sales this year would rise 4 percent, but the remainder of the year looks better,” Yun said. “We expect 5.3 million existing-home sales this year, up from 4.9 million in 2010, with additional gains in 2012 to about 5.6 million – that’s a sustainable level given the size of our population.”
Mortgage interest rates should rise gradually to 5.5 percent by the end of the year and average 6.0 percent in 2012 – still relatively affordable by historic standards.
“A huge volume of cash sales, supported by the recovery in the stock market, show that smart money is chasing real estate. This implies that there could be a sizeable pent-up demand if mortgages become more readily accessible for qualified buyers,” Yun said. “The problem isn’t with interest rates, but with the continuation of unnecessarily tight credit standards that are keeping many creditworthy buyers from getting a loan despite extraordinarily low default rates over the past two years.”
Yun said that if credit requirements returned to normal, safe standards, home sales would be 15 to 20 percent higher. He added that some parents are buying homes with cash for their children, and offering them loans which provide better returns than bank accounts or CDs.
Yun projects the Gross Domestic Product to grow 2.5 percent this year and 2.7 percent in 2012, adding 1.5 million to 2 million jobs yearly over the next two years. The unemployment rate should decline to 8.8 percent by the end of 2011 and average 8.6 percent next year, returning to a normal level of 6 percent around 2015.
Housing starts are forecast to rise but remain below long-term trends, reaching 603,000 in 2011, up from 595,000 last year, and continue growing to 908,000 in 2012. New-home sales are seen at a record low 320,000 this year, rising to 487,000 in 2012. “A recovery in new homes will be slow because of the extra price discount in the existing home market,” Yun noted. In March, the typical new single-family home cost $53,300 more than an existing home.
Inflation appears to be relatively modest for now, with the Consumer Price Index rising 2.9 percent this year. “We’ll be closely watching the impact of fuel costs on consumer spending and inflation – that would slow economic growth, job creation and home sales,” Yun said.
Apartment rents are trending up, and are likely to rise at faster rates as vacancies decline. Following the correction in home prices, it has now become more affordable to buy in most of the country. “Twice as many renters had enough income to buy a home in 2010 in comparison with 2005, so we have a much larger pool of financially qualified renters,” Yun said. “Rising rents and excellent housing affordability conditions will encourage potential buyers who’ve been on the sidelines.”
Yun expects the median existing-home price to remain near $170,000 over the next two years, which would mark four consecutive years of essentially no meaningful price change.
Frank Nothaft, chief economist at Freddie Mac, holds similar views on the outlook. “Economic activity will accelerate this year – there will be no double dip in the economy,” he said. Nothaft is more optimistic on job growth, expecting 2.0 million to 2.5 million jobs created in 2011 with unemployment dropping to 8.4 percent by the end of the year.
Nothaft expects the 30-year fixed-rate mortgage to trend up to 5.25 percent by the end of the year, and for home sales to rise 5 percent. “National home price indices are close to a bottom and prices are likely to bottom sometime this year,” he said.
Refinancing activity in 2011 will be only half of what it was last year. “As a result, banks may become more willing to lend to home buyers,” Nothaft said.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.

Update on the Phoenix Metro Market - ARMLS Report issued in June 2011

Arizona Regional Multiple Listing Service (ARMLS) provided the following STAT report (monthly statistics for the Phoenix Metro Area) through May, 2011

Commentary:

Recovery in slow motion is an apt description of gains this month. June STAT reports positive news on several fronts: sold units are up, new inventory added to the supply is down, total inventory continues to decline, and MSI dropped again in May. Pricing, of course, remains in the doldrums surprising no one, since pricing is a trailing indicator and significant gains have to occur in other metrics before we will see much pricing movement.

Most significant in the continued decline in foreclosures pending which fuels lender owned sales. Since STAT began watching distressed properties back in October of 2009, lender owned sales have accounted for two thirds of the total distressed properties, short sales accounting for the other third. The influence of distressed inven-tory on pricing cannot be overestimated. Pricing cannot begin any meaningful rebound until the influence of dis-tressed properties on pricing is quelled.

The rise in foreclosures pending began in earnest in 2008 starting at 12,877 and climbed to its highest level by the end of 2009 to 51,022, almost four times the level at the start of 2008. Beginning in 2010 the numbers began a steady decline to the present 30,517 reported in this issue. Comparing the current downward trajectory with the 2008 upward trend, the two trend lines should intersect in mid July, meaning that the number of foreclosures pending at that point should be somewhere around 23,500, a level not seen since July of 2008. If the trajectory continues on its current path, foreclosures pending could be well below 20,000 by early fall. Naturally other fac-tors or events could derail this prediction, but the steady definitive decline since the end of 2009 remained solid despite many economic events that could have altered its path, but did not.

A pricing rebound is not solely dependent on supply. The demand side of the equation also must grow. Many buyers are taking advantage of the record affordability of housing in the Valley as seen in the record high sales figures in 2011. This demand at some point will absorb the low end of the housing market, after the flow of lender owned properties into the market is stanched. A combination of other key factors must occur to bolster demand: more potential Valley homebuyers getting back to work, net migration of homebuyers drawn to em-ployment here from feeder markets, and continued recovery of feeder markets so that buyers can sell their homes in order to purchase here.

This month STAT introduced a supplement to the PPI to allow its readers to follow in four month segments the relative makeup, according to price range, of pending properties added to the pending pool each month. In May properties $100,000 and under accounted for 46% of the total new pendings for the month. Properties over $500,000 accounted for only 3.33% of the May pendings. Watching how the pendings change in specific price ranges will offer advance clues to changes in activity in the higher price ranges. Over time, as the percentages change, the market will right itself.

Unemployment continues to decline in the Valley. The US Bureau of Labor Statistics reported 8.1% unemployment for the Phoenix Metropolitan Area down from 8.7% in March, and well below the state rate of 9.3%.1 Jobs continue to be added to the market. This month Safelite AutoGlass announced plans to hire 300 in Chandler and the Vanguard Group3 plans to add more than 300 hires to its Scottsdale call center by the end of 2011. Announcements such as these and many more just like them are needed to fuel the recovery.

For now the direction of recovery is the right one and the pace is very slow, but we know that eventually the Valley will get where it needs to go.
ARMLS - June STAT 2011

Buyers, Sellers Optimistic About Housing

Survey: Americans Still Optimistic About Housing

A sluggish real estate market hasn’t shaken the confidence of the public in how it views home ownership, according to a new study by the Pew Research Center. Eight in 10 adults (or 81 percent) say owning a home is the best long-term investment a person can make, according to the Pew study of about 2,000 adults conducted in March.

“Home owners are not blind to what has happened to home prices, nor are they expecting a speedy recovery,” according to the Pew study. In fact, of the home owners surveyed, about half said their home is worth less now than before the recession, while 31 percent said their home’s value has stayed the same.

Nevertheless, 82 percent of home owners who say their home is worth less now than before the recession either strongly or somewhat agree that home ownership is the best long-term investment a person can make, according to the survey.

The value of home ownership even continues to emerge on top when home owners were surveyed and asked to rate the importance of four long-term financial goals. Home ownership and "being able to live comfortably in retirement" rated the highest--viewed as either extremely or very important by 80 percent of respondents.

Yet, their optimism about home ownership doesn’t mean they're completely happy with their current home. Nearly a quarter of all home owners surveyed said that if they had it to do all over again, they would not buy their current home. Most of the “buyer’s remorse” complaints were about the home itself or its location. Only 31 percent of those surveyed cited financial factors, such as the home losing value or their own changing financial situation.

Source: “Home Sweet Home. Still.” Pew Research Center (April 12, 2011)

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No McMansions for Generation Y

No McMansions for Millennials

Here's what Generation Y doesn't want: formal living rooms, soaker bathtubs, dependence on a car.

In other words, they don't want their parents' homes.

Much of this week's National Association of Home Builders conference has dwelled on the housing needs of an aging baby boomer population. But their children actually represent an even larger demographic. An estimated 80 million people comprise the category known as "Gen Y," youth born roughly between 1980 and the early 2000s. The boomers, meanwhile, boast 76 million.

Gen Y housing preferences are the subject of at least two panels at this week's convention. A key finding: They want to walk everywhere. Surveys show that 13% carpool to work, while 7% walk, said Melina Duggal, a principal with Orlando-based real estate adviser RCLCO. A whopping 88% want to be in an urban setting, but since cities themselves can be so expensive, places with shopping, dining and transit such as Bethesda and Arlington in the Washington suburbs will do just fine.

"One-third are willing to pay for the ability to walk," Ms. Duggal said. "They don't want to be in a cookie-cutter type of development. ...The suburbs will need to evolve to be attractive to Gen Y."

Outdoor space is important-but please, just a place to put the grill and have some friends over. Lawn-mowing not desired. Amenities such as fitness centers, game rooms and party rooms are important ("Is the room big enough to host a baby shower?" a millennial might think). "Outdoor fire pits," suggested Tony Weremeichik of Canin Associates, an architecture firm in Orlando. "Consider designing outdoor spaces as if they were living rooms."

Smaller rooms and fewer cavernous hallways to get everywhere, a bigger shower stall and skip the tub, he said. Oh, but don't forget space in front of the television for the Wii, and space to eat meals while glued to the tube, because dinner parties and families gathered around the table are so last-Gen. And maybe a little nook in the laundry room for Rover's bed?

In his presentation, KTGY Group residential designer David Senden showed slide after slide of dwellings that looked like a cross between a hotel lobby and the set of "Melrose Place."

He christened the subset of the generation delaying marriage and family as "dawdlers."

"A house in the suburbs is not for them," Mr. Senden said. "At least not yet."

Places to congregate are more important than a big apartment, he cautioned. He showed one layout of a studio apartment-350 square feet, as big as Mom and Dad's Great Room. Common space has migrated to "club rooms," he said, where Gen-Y residents can host meals and hang out before heading to a common movie-screening room or rooftop swimming pool that they share with the building's other tenants.

The Great Recession and its effects on young people's wages will affect how much home they can buy or rent for years to come.

"Not too many college grads can afford a lot of space in the city," he said. "Think lots of amenities with little tiny units-and a lot of them to keep (fees) down. ...The things these places are doing is constantly coordinating activities. The residents get to know each other and it makes for a much livelier and friendlier environment."


By S. Mitra Kalita and Robbie Whelan, WSJ.com
Jan 14, 2011 Provided by: Share
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