12-23 Forecast for the Existing Home Housing Market 2010 :: The Construction Management Pro

12-23 Forecast for the Existing Home Housing Market 2010

We all know this is a buyer’s market. There is an overabundance of product and potential buyers are unsure of their economic future. So what does this mean for existing home sales for 2010 and what factors will influence the demand for housing in the upcoming quarters? We saw a blip in home sales as the anticipated expiration of the First Time Homebuyer Tax Credit neared. With its extension to April of 2010, there should be another surge in existing home sales. But the major factor driving the housing market is “the economy stupid.”

On Wall Street, there has been a rash of companies that have failed to meet their earnings expectations. They met those expectations in the last two quarters by cutting expenses (read that as payrolls). Companies have done as much as they can. Therefore in order to meet their earnings expectations they have to have top line growth. If we are reading these tealeaves correctly, companies have stopped reducing payroll and will begin to focus their attention on increasing sales. This will lead to a reduction in new unemployment claims followed by a reduction in the unemployment rate. Once consumers see these indicators stabilize, they will feel more confident in their own financial futures. This is a necessary condition for households to undertake their largest financial purchase, a home.

In a recent commentary, the National Association of Realtors said that there are 4.5 million more renter households who have the necessary income to buy a median priced home at prevailing market conditions. If just 5% of these additional financially healthy renters become home buyers, that would mean 225,000 additional home sales. We saw existing annualized home sales go from 4.5 million a few months prior to the stimulus bill to 5.1 million in Q3. That is a change of 600,000 additional existing home sales. New home sales rose from the mid 300,000 to low 400,000 range during a similar period. Therefore 225,000 is a significant number of additional sales. However, this increase in demand may be off set by an increase in foreclosures. There is mounting evidence that mortgage modifications are working there way though the banking pipeline. Weidel Realtors is anticipating an increase in REO’s by approximately 15% over the next two quarters. In New Jersey, they are projecting 65,000 foreclosures. However, this is better than the 75,000 of a year ago.

The third factor to consider is financing. Mortgage rates remain at historic lows. The average rate is projected to increase from May’s low of 4.86% but stay below 6% for the foreseeable future. If mortgage rates continue to up tick, more buyers will be spurred to make the decision to buy before rates rise further.  Bank financing is still hard to come by and credit will remain tight for some time. However, there is no indication that things will get worse.

Lastly is the housing market itself. We have discussed supply and demand issues, but there is another, price expectations. The Third Quarter TREND Report of the MLS indicated that for Camden County, NJ there was a -5.65% price change from a year ago. While still negative, this is far better than the 20+% declines of earlier this year. U.S. house prices rose 0.6 percent on a seasonally adjusted basis from September to October, according to the Federal Housing Finance Agency’s monthly House Price Index. Home price appreciation is the last shoe to fall before we can see a consistently improving housing market.


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