Existing-home sales to hold in narrow range, then begin upward trend

The housing market may continue to be in the buyer's column over the next few months, according to the latest forecast by the National Association of Realtors. Sales activity is likely to remain soft during the next six months, in spite of low interest rates and lower prices. However, pent-up demand will likely bring potential buyers off the sidelines to boost home sales in the second half of the year. An economic stimulus package that increases access to conventional and government loans can also have a strong impact on the market.
"Existing-home sales have moved narrowly since last September, but when the full impact of higher loan limits for conventional mortgages begins to impact the market there is likely to be a notable rise in home sales and prices," said NAR Chief Economist Lawrence Yun. "If higher limits are enacted very quickly, we'll see a faster and more meaningful recovery by expanding safe, affordable financing in high-cost areas – that, in turn, would help to stimulate overall economic activity."
"Areas with a high prevalence of subprime lending will continue to feel downward price pressure. Where builders have cut construction sharply, and in most areas with improving affordability conditions, we'll generally see moderately higher home prices," Yun said.
New-home sales are likely to decline 17.7% to 637,000 in 2008 before rising 7.6% to 685,000 in 2009. "Builders will further lower new home construction throughout this year and into 2009 to bring inventory under control," Yun said. Housing starts, including multifamily units, are estimated to fall 20.1% to 1.08 million this year, and decline another 1.3% to 1.07 million in 2009. The median new-home price is expected to fall 4.3% 2008, and then increase 5.0% in 2009.
The 30-year fixed-rate mortgage is forecast to rise slowly to the 5.9% range in the fourth quarter, and then average 6.3% in 2009. "Affordability conditions are anticipated to rise 14.2% this year, permitting more people to become homeowners, but buyers should avoid aggressive lenders and not over-stretch to enter the market," Yun said. NAR's housing affordability index is expected to rise from 113 in 2007 to 129 in 2008.