It may still have to get worse before it gets better, but the residential real estate market shows signs that demand is building and home values may start recovering in 2008.
It seems there's bad news for the housing market every day: More mortgage resets are coming in the next year, lenders are tightening standards and homes continue to pour onto the market. All point to sinking home values in the near future.
There are plenty of statistics to warrant a gloomy outlook.
The National Association of Realtors says existing single-family home sales dropped 8.6 percent to a seasonally adjusted annual rate of 4.38 million in September, compared to a pace of 4.79 million in August. That rate is 19.8 percent below the 5.46 million-unit pace from September 2006. What's more, the median existing single-family home price was $210,200 in September, down 4.9 percent from the same time last year.
Good news, bad news
But there are also some encouraging signs. Lawrence Yun, chief economist for the National Association of Realtors, or NAR, believes home values may start recovering next year because significant demand has been accumulating. He says prices actually continue to trend upward in the Northeast, Midwest, throughout the condo sector and in areas that are not dependent on jumbo loans.
In the past two years, Yun says, more than 4 million new jobs have been created, wages have been rising and Americans accumulated $4 trillion in wealth through the stock market. He says that many people who may have been priced out of the market haven't yet returned due to a lack of confidence and a continuing bad news.
“In the past two years more than 4 million new jobs have been created, wages have been rising and that Americans accumulated $4 trillion in wealth through the stock market.” "Many people may just be wondering if it is better to buy later rather than now. Whether that is now or later, buyers are (and will be) able to re-enter the market at a more attractive price and a much larger selection of inventory," says Yun. "Mortgage rates are still favorable."
Slashing prices
As desperate sellers are forced to cut their asking prices and as home builders slash prices to get rid of excess inventory, Yun feels it is inevitable that some of those bargain shoppers will jump at offers and, in turn, slowly put upward pressure on sales and prices.
NAR data from the second quarter of 2007 actually shows price increases in 97 of the 149 metropolitan statistical areas. Because high-population areas such as Florida, Nevada and California have led the downturn, it sometimes masks the fact that the overall market has remained stable throughout most of the country.
An early indicator that such a trend may be underway came in September 2007 when, the Commerce Department reported, sales of new single-family homes actually rose 4.8 percent with a revised annual rate of 770,000 compared to a rate of 735,000 in August 2007, despite a drop in the median sales price of new homes from $232,100 to $230,000 from August through September.
Yun says Utah has still seen growth and believes Texas is ripe for price gains because of the strong job growth. Much of the South -- except for Florida -- has remained stable. With declining inventories, he also expects Denver and Boston to switch to positive pricing in the near future.
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