Leading Economist Predicts Housing Market Upturn in 2nd Half 2008

Buyers who have been sitting on the fence, thinking that a better deal will be found at the end of this economic rainbow, may want to consider leading consumer economist’s latest predictions.

Lawrence Yun, Chief Economist of the National Association of Realtors, predicts that “Existing home sales could start to show a sustained increase within a few months, unless there are some additional economic problems or excessive inflationary pressure,” he said.

“We’re looking for essentially stable sales in the near term, before higher mortgage loan limits translate into more sales in high-cost markets. The wider access to affordable credit should increase sales activity notably this summer as pent-up demand begins to be met.”

He does not predict the market to continue it’s slippery slide for a prolonged period. Little change is expected in existing-home sales over the next few months before improving notably during the second half of the year, according to the latest forecast by the National Association of Realtors®.

One of the leading indicators that economists view to judge the strength of the housing market is “The Pending Home Sales Index” which measures the number of contracts signed in a given period. The slip in pending home sales in February was not as great as expected, slipping only 1.9% from January. Yun says that this would indicate that the deep sales declines do indeed appear to be over.

“The aggregate existing-home price will probably ease by 1.4 percent to a median of $215,800 for all of 2008 before rising 3.7 percent to $223,800 next year. The median new-home price will probably fall 3.6 percent to $238,400 in 2008, and then rise 4.0 percent next year to $247,800.”

When you combine this with predictions for upward trends in the interest rates, waiting to buy may mean higher monthly payments to the average home buyer. The 30-year fixed-rate mortgage, which has fluctuated recently, should average 5.8 percent in the second and third quarters, but trend up to an average of 6.3 percent in 2009.

“The economy will not grow in first half of the year,” Yun said. “However, the combination of recent fiscal stimulus enactment and the lagged impact of monetary policy will help jump start the economy in the second half.” Growth in the U.S. gross domestic product (GDP) is expected to be 1.4 percent in 2008 and 2.4 percent next year. The unemployment rate is forecast to average 5.4 percent this year and 5.6 percent in 2009.

As buyers and sellers contemplate the current housing market, it is important to remember each area is unique and every region will respond differently to the various factors at work, and keep in mind, that much of the media coverage includes those areas which had a much steeper decline, because they were far more “overheated” than the Chicago market. Overall, it looks like there’s an optimistic future for existing home sales nationwide, which may mean an even faster rebound in the Chicago area for residential real estate sales.