NAR: Gradual recovery for housing and economy in 2012

ANAHEIM, Calif. – Nov. 15, 2011 – Although the housing market struggled to maintain an even footing in 2011, gradual improvement is expected in 2012 and beyond, according to projections at the 2011 Realtors® Conference & Expo.

Lawrence Yun, chief economist of the National Association of Realtors (NAR), said home sales should be stronger. “Tight mortgage credit conditions have been holding back homebuyers all year, and consumer confidence has been shaky recently,” he 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. This demand could quickly stimulate the market when conditions improve.”

Yun projects growth in Gross Domestic Product to be 1.8 percent this year, then rising moderately at a rate of 2.2 percent in 2012. With job growth of 1.7 to 2.2 million next year, the unemployment rate is expected to decline to 8.7 percent by the second half of 2012. Mortgage interest rates should gradually rise from recent record lows and reach 4.5 percent by the middle of 2012.

“Housing affordability conditions, based on the relationship between median home prices, mortgage interest rates, and median family income, have been at a record high this year,” Yun said. “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 percent this year, and then rise another 4 to 5 percent in 2012. Based on NAR’s current projection model, existing-home sales would total 4.96 million in 2011.

Housing data
NAR says it is benchmarking its existing-home sales statistics, and it expects total sales to be lowered for recent years. However, it doesn’t expect many changes to previously reported percentage comparisons, median prices or the month’s supply of inventory. NAR expects to publish its improved measurement methodology soon.

“NAR began its normal process for benchmarking sales at the beginning of this year in consultation with government agencies, outside housing economists and academic experts,” NAR said in a release. “There will be no notable change to previous characterizations of the market in terms of sales trends, monthly percentage changes, etc.”

In the 2010 U.S. Census, the government stopped reporting home sales data, which NAR used as a benchmark. As a result, the association had to develop a new independent score to use as a baseline for its calculations. Preliminary data using the new benchmark will “undergo broad review shortly by professional economists and government agencies. After any issues that may surface in the review process are addressed, we will update monthly seasonal adjustment factors and publish revisions.”

Housing forecast
New-home sales are expected to be a record low 302,000 this year, rising to 372,000 in 2012. Housing starts are forecast to rise to 630,000 next year from 583,000 in 2011.

“Although a double-digit growth in new-home sales and housing starts sounds encouraging, the projections remain historically soft relative to long-term underlying demand,” Yun explained.

With falling inventory, the median home price should rise in 2012. “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. “Once home prices turn positive on a sustained basis, consumer confidence will rise and help the broader economy to improve,” Yun added.

Richard Peach, senior vice president at the Federal Reserve Board of New York, said the economy is under-performing. “Nearly two-and-a-half years since the end of ‘the great recession,’ the economy continues to operate well below its potential,” he said. “Among the significant structural impediments are the legacy of the housing boom and bust, and fiscal contrition at the state and local level.”

Peach said the current business cycle remains 7 percent below its peak and is longer than other recession cycles since 1953. He added the employment to population ratio is historically low, and there’s been a shift in the distribution of income, with corporate profits up strongly while employment compensation is down.

Peach believes there is a sizeable level of shadow inventory that will result in rising foreclosures. “My idea is to allocate certificates to 2.5 million service members who served in Afghanistan and Iraq that could be used as a downpayment on a foreclosed home in the Fannie or Freddie portfolio,” he said.

© 2011 Florida Realtors®