America’s economic rebound depends on a real estate recovery, but many are asking –“what’s it going to take to get it all going?”
Housing always leads the economy in recoveries, and this one will be no different. In fact, already there are signs that housing is perking up.
The most important factor driving home sales is affordability. With home prices falling in many parts of the country and mortgage rates still near historic lows, affordability conditions have markedly improved.
While it’s true that unemployment is rising, it’s important to remember that 93 percent of working households have jobs, compared with 95 percent during good economic times. Those people who are working, respond to incentives and attractive affordability conditions.
Measures like the new first-time homebuyer tax credit and the increased number of mortgage loans qualifying to be purchased by Fannie Mae, Freddie Mac and the Federal Housing Administration are helping to bring homebuyers into the marketplace.
An early indication that buyers are responding to incentives was the solid jump in pending home sales in August, to the highest level in more than a year.
Nationwide, existing-home sales likely will break out from a seasonally adjusted annual sales rate of 4.8 million to 5 million to 5.2 million by the end of this year, according to economists at the National Association of Realtors®. By 2009, existing-home sales likely will total 5.4 million, up from about 5 million in 2008.
New home sales will not fair as well, according to NAR. There is an oversupply right now and home builders in most areas are being forced to cut back sharply.
The total inventory of new and existing homes combined remains elevated, so further reductions in building will be a good thing. The lower level of housing starts this year will keep new-home sales under 500,000 in 2009 – far below the 1.2 million peak in 2005, according to NAR analysts.
NAR’s economists are not expecting a prolonged and deep recession. Fortunately, the economic downturn appears manageable.
Previous housing recoveries have shown that rising sales will thin out the housing inventory and begin stabilizing home prices. The credit markets will loosen up once home prices have begun to recover.
Fortunately, policymakers and both Presidential candidates recognize the need to get the housing market moving. The two housing stimulus bills this year (which include the homebuyer tax credit and higher loan limits), as well as the $700 billion U.S. Treasury plan and the Federal Reserve’s recent actions are all designed to assure a steady mortgage flow and help revive the housing sector.
Home buyers and sellers should take a good look at the opportunities that exist in today’s market. For qualified buyers, this could be just the time to take advantage of the lower interest rates, affordable prices and incentives like the tax credit. If you’re a seller who has only owned your home for a couple of years, remember that any loss you take on the sale is more than likely to be made up on the new purchase.
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