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2008-04-10 13:44:00

Existing-Home Sales to Stabilize Before Upturn in 2nd Half of 2008

Little change is expected in existing-home sales over the next few months, before improving notably during the second half of the year, according to the latest forecast by the National Assn. of REALTORS®.

Lawrence Yun, NAR chief economist, said the market will come into clearer focus this summer.  “Existing home sales could start to show a sustained increase within a few months, unless there are some additional economic problems or excessive inflationary pressure,” he said.  “We’re looking for essentially stable sales in the near term, before higher mortgage loan limits translate into more sales in high-cost markets.  The wider access to affordable credit should increase sales activity notably this summer as pent-up demand begins to be met.”

The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in February, slipped 1.9% to 84.6 from an upwardly revised reading of 86.2 in January, and was 21.4% lower than the February 2007 index of 107.6.  “The slip in pending home sales implies we’re not out of the woods yet, though an era of successive deep sales declines appears to be over,” Yun said.

The PHSI in the Northeast rose 3.2% in February to 71.8 but remains 25.4% below a year ago.  In the Midwest, the index declined 3.7% to 82.7 and is 17.4% lower than February 2007.  The index in the South fell 5.5% in February to 85.0 and is 30.3% below a year ago.  In the West, the index rose 2.1% in February to 95.8 but is 6.1 % below February 2007.

Existing-home sales are likely to rise from an annual pace of 4.9 million in the first quarter to 5.9 million in the fourth quarter.  With relatively weak activity in the first part of the year, existing-home sales for all of 2008 are forecast at 5.39 million, increasing 6.6% to 5.74 million in 2009. 

“Exceptionally weak home sales related to jumbo loans problems will depress home prices in the first half of the year, but steady liquidity improvements in the conforming jumbo-loan market will help prices recover in the second half of the year,” Yun said.  The aggregate existing-home price will probably ease by 1.4% to a median of $215,800 for all of 2008 before rising 3.7% to $223,800 next year. 

Yun noted that there will continue to be wide variations in regional housing market conditions.  “Some parts of the country that can expect improvement include the Northeastern region and the oil-patch states of Texas, Oklahoma, Louisiana and Arkansas,” he said.   With lower interest rates and flat home prices in many areas, NAR’s housing affordability index is forecast to rise 14%age points to 127.0 in 2008.

New-home sales are projected to fall 25.7% to 576,000 in 2008 before rising 4.6% to 602,000 next year.  Housing starts, including multifamily units, are estimated to drop 26.3% to 999,000 this year, and slip another 0.5% to 994,000 in 2009.  The median new-home price will probably fall 3.6% to $238,400 in 2008, and then rise 4.0% next year to $247,800.

The 30-year fixed-rate mortgage, which has fluctuated recently, should average 5.8% in the second and third quarters, but trend up to an average of 6.3% in 2009.

“The economy will not grow in first half of the year,” Yun said.  “However, the combination of recent fiscal stimulus enactment and the lagged impact of monetary policy will help jump start the economy in the second half.”  Growth in the U.S. gross domestic product (GDP) is expected to be 1.4% in 2008 and 2.4% next year.  The unemployment rate is forecast to average 5.4% this year and 5.6% in 2009. 

Inflation, as measured by the Consumer Price Index, is projected at 3.4% in 2008 and 2.2% next year.  Inflation-adjusted disposable personal income is likely to grow 1.2% this year and 3.0% in 2009.

The National Assn. of REALTORS®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.3 million members involved in all aspects of the residential and commercial real estate industries.

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(1) 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 March will be released April 22; the next Forecast / Pending Home Sales Index will be released May 7.

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