Real Estate Analysts Cautiously Optimistic for 2010
Posted By susanne On January 20, 2010 @ 4:02 pm In Real Estate, Today's Marketplace, Today's Top Story - Consumer | Comments Disabled
RISMEDIA, January 21, 2010â€”(MCT)â€”According to David Crowe, chief economist of the National Association of Home Builders, home builders, mired in their deepest slump since the Great Depression, are likely to see a rebound in sales in 2010 as stabilizing home prices and record-high affordability conditions draw buyers into the market.
â€œThe stage is set for the consumer to return,â€ said Crowe. â€œIt wonâ€™t be a strong recovery, but it will be a recovery.â€ Crowe predicts that housing starts will rise more than 25% in 2010, to 700,000 units, from 550,000 in 2009. Low interest rates will continue to help the housing industry: Even though they are expected to rise, the 30-year mortgageâ€”now just above 5%â€”will stay below 6% through the year, predicted Frank Nothaft, chief economist for mortgage agency Freddie Mac.
But Crowe and other economists speaking at the International Builders show, being held this week in Las Vegas, cautioned that there are plenty of reasons to be cautious about the home building outlook for 2010. Even home builders themselves are reluctant to embrace the positive predictions.
Any optimism on home building should be tempered on a number of counts, said Ed Sullivan, chief economist for the Portland Cement Association, whose members provide concrete used in residential and commercial projects. â€œIâ€™m much more cautious as to the magnitude and timing of when that optimism comes,â€ Sullivan said. â€œThere are hurdles still facing this industry and the issues donâ€™t start to abate until the second half of this year.â€ Single-family starts could rise 20% in 2010, but that is â€œfrom a desperately low level and pathetically mild in absolute numbers,â€ he said.
Sullivan laid out six items that work against any big recovery in housing in 2010:
-A slow labor market recovery. â€œMuch hinges on the labor market and when that turns,â€ Sullivan said. But both the governmentâ€™s payroll survey and the household survey show continuing, if moderating, job losses. â€œEmployment is the No. 1 reason caution persists,â€ Crowe said. â€œWeâ€™re not going to add jobs for at least several more months.â€
-Payback from the expiration of the home buyer tax credit. â€œThe tax credit is pulling people forward who were in the market anyway. So the sales pace isnâ€™t quite as vibrant as suggested by the raw data. There could be a payback that materializes in July when the current version expires,â€ Sullivan said.
-Rising foreclosures. Moratoriums on foreclosures and an unworkable backlog that paralyzed many lenders made it look as if the foreclosure situation was easing in the second half of 2009. Expect the pace to accelerate this year. â€œSerious-delinquency rates havenâ€™t peaked yet,â€ said Nothaft. â€œThat usually happens six to 12 months after the employment recovery begins.â€
-Price pressures. A rise in bank repossessions of homes will undoubtedly create additional pressure on home prices, Sullivan said. â€œHome prices have stabilized, but is that permanent?â€ asked David Berson, chief economist for PMI Group, a mortgage-insurance firm. â€œYouâ€™ll see more price declinesâ€”part is seasonal because we always see declines in the winter, but weâ€™ll see more delinquencies and foreclosures,â€ and that could add to inventory increases and price cuts. â€œIt could be three years before we get back to the long-term trends of home price appreciation,â€ Berson said.
-Tight lending standards. Mortgage lenders are unlikely to ease underwriting standards with the labor market soft and home prices unstable. That will crimp housing demand, Sullivan said.
-The potential for interest-rate increases. Lenders may demand a bigger risk premium for home loans in this environment and with the Fed about to wind down its purchases of mortgage-backed securities, there is a potential that interest rates will rise this year.
The good news? â€œOnce we get out of this, there is going to be a lot of pent-up demand that is going to be released in 2011, 2012 and 2013,â€ Sullivan said.
Though December 2009 was another slow month for housing, sales and traffic picked up immediately following Christmas and continue to show more strength into the New Year, according to John Burns Real Estate Consultingâ€™s January survey of home builders. â€œTraffic improvements are more about quality than about sheer numbers,â€ said Jody Kahn, a vice president with the firm. â€œStill, this better end to the year buoyed buildersâ€™ perspectives for the next six months.â€
Kahn said new home prices were mostly flat around the country, with four key regionsâ€”Southern California, Texas, Midwest and southern Floridaâ€”showing stable prices for the first time since the downturn began. That price stability, though, may have contributed to slowing sales in all but the southern Florida region.
According to the survey, many builders are starting the year with low inventories of homes for sale, following a strong fall for deliveries. But Kahn said a rise in inventory is expected through March as home builders anticipate a strong spring selling season, sparked in part by the April 30 deadline to qualify for the home buyer tax credit.
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