A slow, steady recovery is predicted for the housing market despite ongoing challenges, according to a residential market update today at the 2010 REALTORS® Conference & Expo.
Lawrence Yun, National Association of Realtors® chief economist, expects continuing improvement of underlying fundamentals of the current market in coming years.
“A slow recovery is taking place as we head toward our goal of a stable, solid housing market. However, the pace of job growth will determine the strength of the housing market recovery,” said Yun.
Yun was joined onstage by Dr. Thomas Hoenig, president of the Kansas City Federal Reserve Bank, who said that broad economic policies in the 1990s encouraged wide credit expansion and ultimately led to home owners overleveraging themselves to achieve home ownership. Koenig said that re-establishing sensible, solid underwriting standards and down payment requirements would help stabilize the market.
“I am confident that the nation’s housing market will get stronger – what we need is a more stable market in the future with healthy cycles, and not booms and busts,” said Koenig.
Yun said that while consumer confidence remains low, home buyers are responding to historically low mortgage interest rates and favorable affordability conditions. NAR’s existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose the past two months, most recently up 10 percent in September, following a sharp correction after the home buyer tax credit expired.
While mortgage rates are currently hovering below 4.5 percent, Yun projects rates will continue to rise throughout the next two years – up to 5 percent in 2011 to nearly 6 percent in 2012.
“Mortgage rates have probably hit bottom. Higher rates in the next couple of years could impact and potentially reduce the number of potential buyers entering the housing market, so well-qualified buyers that are currently in the market for a home shouldn’t wait for rates to go any lower.”
According to Yun, the national median home price has stabilized over the past 18 months. A recent NAR survey showed that Realtors® are nearly equally divided about whether home prices in their area will rise or fall during the next year, Yun said, and he predicted that overall prices will remain stable, without any meaningful increase for at least another two years.
During the forum, Yun also stressed the importance of long-standing policies that promote home ownership, namely the mortgage interest deduction. “If the tax benefit were eliminated, it could reduce home values by an additional 15 percent and cause severe wealth destruction,” he said.
“Americans need public policies that promote responsible, sustainable homeownership as we head toward a full recovery in the housing market,” said Yun.
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.