Market Poised For Turnaround - NAR Prediction

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The nation's housing woe is poised for a turnaround, according to the top economists for the National Association Of Realtors. Sighting evidence of "green shoots" forming in many areas of the economy, NAR chief economist Lawrence Yun told attendees at the organization's mid-year meeting held in Washington, DC in mid-May that the housing sector is ready to shake out of the doldrums it's been experiencing by the second half of the year.

"The economic recovery will begin by the end of 2009, early 2010, due to the federal stimulus money fully taking effect," Yun said. "Stimulus and falling inventory will help stabilize prices."

As a result, nationwide existing homes sales should see a bump of 10-20 percent in the second half of 2009 compared to the same period a year ago.

"California is now seeing a 100 percent jump in home sales from the trough. The question is if California is setting a trend for the others," Yun added.

Other positives include a reduction in the inventory of homes for sales from the current nine month supply to a seven to eight month level later this year, "which will lead to price stabilization," Yun said. "On top of that our pending sales index is up slightly."

Yun said much of the recent good news is due to the influx of first-time home buyers looking to take advantage of the $8,000 non-repayable tax credit and discounted pricing.

"First-time buyers are attracted to the deeply discounted distressed sale properties," he said. "About half of all recent transactions have been distressed sales. 15 to 20 percent are short sales and 30 to 35 percent are foreclosures."

The discount prices are having a negative effect on all properties, with "estimates that 20 to 25 percent of all homeowners being underwater," owing more on their mortgage than what the property is really worth.

While troubling, Yun noted that the pricing retreat combined with historic low interest rates has boosted the housing affordability index to an all time high, surpassing the previous high water mark set in the early 1970s. "This means more people can afford to buy a home but people need to stay within their budget."

An uptick in the economy is important to a robust housing turnaround, something that should begin to occur by the third quarter of 2009 folliwing four consecutive quarters of negative GDP growth. One potentially troubling factor preventing a full recovery could be continued job losses, which are expected to peak at 10.5 percent nationally by early 2010.

There are positive signs of the credit crunch coming to an end, Yun said, cautioning that the true test will be evident when lower rates are offered on jumbo mortgages, second home and condo purchases and on commercial real estate loans.

"The strength of our GDP recovery going forward is dependent on home price growth. Consumer spending improves from a housing wealth effect. Bank balance sheets improve and there's an easing of the credit crunch. Finally, the foreclosure pressure lessens."