Economists Predict Gradual Improvement for Economy and Housing Market in 2012
While
the housing market had its challenges in recent years, there could be reason
for optimism as we begin the new year. Some of the nation’s top housing
economists believe that the worst of the downturn may be over, and predict
we’ll see gradual improvement in home sales and prices this year.
That
would be good news for both home sellers as well as potential buyers, many of
whom have been sitting on the sidelines waiting for confirmation that the real
estate market is truly on the mend before they take the plunge and buy.
Lawrence
Yun, chief economist of the National Association of Realtors, said in his
annual forecast that home sales should be stronger in 2012.
“There
is a sizeable pent-up demand based on population growth, employment levels and
a doubling-up phenomenon that can’t continue indefinitely,” he said in a NAR
news release. “This demand could quickly stimulate the market when conditions
improve.”
Housing
demand will also be driven by the health of the nation’s overall economy and
the job market, Yun said. He forecasts GDP growth will finish at 1.8 percent
for 2011 and then rise moderately to 2.2 percent in 2012. Additionally, Yun
expects job growth of 1.7 to 2.2 million this year and the unemployment rate to
fall to 8.7 percent in the second half of 2012.
Housing Affordability High
For
homebuyers, housing affordability right now is as good as it has been in
decades as a result of near record low mortgage interest rates and reduced home
prices in many markets. NAR expects those conditions to continue for much of
this year.
Average
mortgage interest rates for the week of January 16, for example, stood at 3.88
percent for a 30-year conforming fixed rate loan and 3.22 percent for a 15-year
fixed rate loan, according to Bank Rate Monitor, the widely followed financial
publishing website.
“Housing
affordability conditions, based on the relationship between median home prices,
mortgage interest rates, and median family income, have been at a record high,”
Yun said.
“Very
favorable affordability conditions will dominate (2012) as well, which will
probably be the second best year on record dating back to 1970,” he noted. “Our
hope is that credit restrictions will ease and allow more home buyers to take
advantage of current opportunities.”
Rates Keeping Payments Low
Lower
interest rates on top of more affordable home prices can make a big difference
for first-time homebuyers. For someone purchasing a $500,000 home, putting 20
percent down and borrowing $400,000, that average 30-year fixed rate mortgage
of 3.88 percent translates into monthly principal and interest payments at
$1,882 today.
If
that same home were to climb even 10 percent in price and mortgage rates
increased just one percentage point, it may be harder for many first-time
buyers to qualify. Borrowers would be looking at a monthly payment $500 higher
than they have today in that scenario.
The
combination of low interest rates on top of affordable home prices offers
buyers a window of opportunity to jump into the market, whether they are
first-time buyers looking for a starter home, someone hoping to move up to a
larger property or a family considering the vacation home of their dreams.
Home Sales To Rise in 2012
NAR
economists believe favorable market conditions and an improving economy will
lead to an increase in home sales in 2012. The organization forecasts
existing-home sales will rise 4 to 5 percent this year after increasing about 1
percent in 2011.
On
the new home front, NAR expects sales to jump from a record low 302,000 units
in 2011 to 372,000 in 2012. Housing starts are forecast to rise 8 percent to
630,000 this year as well.
With
the inventory of homes declining in many areas, consumers can expect to see
home prices gradually begin to rise again this year, NAR said. “Given an
over-correction in prices, there likely will be moderate appreciation in 2012,”
Yun said.
“Once
home prices turn positive on a sustained basis, consumer confidence will rise
and help the broader economy to improve,” he added.
NAR
isn’t alone in its assessment of a market turnaround.
Noted
housing economist Liz Ann Sonders of Charles Schwab said in a recent report
that “we’re seeing a light at the end of the housing tunnel.” The senior vice
president and chief investment strategist for Schwab pointed out that the
pending-home-sales index surged more than 7% last month to its best level since
April 2010.
“At
that point, housing was artificially supported by the homebuyer tax credit,”
she said in her new economic forecast. “The last time that pending sales were
at the current level without government support was June 2007.”
Adding
to the optimism, Sonders said in her report, was the fact that the latest
construction spending report was well ahead of expectations with most of the
gains in private housing.
California Housing Outlook
Leslie
Appleton-Young, Senior Vice President and Chief Economist for the California
Association of Realtors, believes the Golden State’s housing market will also
improve this year, although the recovery will be gradual.
Appleton-Young
is calling for a 1 percent increase in sales in California to 496,200 this year
following essentially flat sales in 2011.
“The
most likely scenario is for the modest recovery to continue, and this should
push sales up slightly next year and maintain levels that are significantly
higher than those recorded during the depths of the housing downturn,” she said
in her report.
While
no one knows for sure what will happen to the housing market in the coming
year, many analysts agree that things are getting better.
One
important indicator – pending home sales – saw a year-over-year increase for
the seventh straight month in November, according to CAR. And closed sales were
up for the fifth consecutive month as well.
An
improving job market and overall economy could translate into a rebound for the
housing market as well.
So
if you have been holding off buying a home, this may be the year you’ll want to
jump back into the market while prices, interest rates and overall
affordability are still in your favor. Give us a call and we’ll help make your
dream of homeownership a reality in 2012.
(Source: Reality Check)
Janice Lee
International President’s Circle
Top Producer, Realtor
415-832-9151
JaniceFLee@Gmail.com
I do appreciate the info. Thanks. Is your contact information listed here? Have I missed it?
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