The Spring Housing Market Outlook

The spring housing market is usually greeted with eagerness and enthusiasm by home sellers and buyers, Realtors and mortgage professionals.  This year, though, it is being met with, well…hope.   While there are still plenty of negatives, a sour economy and widespread job losses are at the top of the list, there are some distinct positives that have some industry experts seeing the storm clouds clearing later this year.

To start with, first-time homebuyers have every reason to step up in 2009, thanks to a more attractive federal tax credit.  The economic stimulus bill boosted the first-time buyer credit to $8,000 and removed the unpopular payback requirement (see page 4 for details).  Of course, we would like to have seen a broader and bigger credit.  The homebuilders had pushed a visionary (some might say “hallucinatory”) proposal for a $22,500 tax credit available to all homebuyers.  No deal.  Still, the improved first-timers credit should lend added support to what has been one of the bright spots in the market.

A plan announced by the White House to stem foreclosures, full details of which were expected to be available March 4, should help stabilize the housing market if it succeeds by markedly reducing inventories and sales of distressed properties.

In some communities, foreclosures have constituted the bulk of the homes on the market.  Most homeowners in these neighborhoods who have been paying their mortgages are unable to sell if they wanted to without having to bring cash to the table, so they haven’t.  Once foreclosures are swept from those areas, prices should stop falling, as considerably fewer homes will be available.

Historically low mortgage rates, at or below 5%, even if they aren’t available to all-comers (see Page 4), are a cornerstone for the foundation of an improved housing market.  Even those who don’t qualify for the very best rates will usually find better rates than they would have six or twelve months ago.

With Fannie Mae and Freddie Mac playing an even more essential role in the mortgage market these days, the Treasury recently upped its backing for Fannie and Freddie. 

That move was intended to assure purchasers that Fannie and Freddie securities are still safe to buy, enabling the two mortgage giants to keep loan funds flowing.

The combination of low mortgage rates and falling home prices has sent affordability measures soaring. 

The National Association of Realtors’ Housing Affordability index recently stood at the highest reading on record.  The NAR index, started in 1970, rose to 158.7 in December.  The index tracks the relationship among home prices, mortgage rates and household incomes. 

New home starts have continued to sag, falling to 50-year record low levels in January.  Good.  We can’t expect to work down the inventory of existing homes if homebuilders keep adding to the overall supply of houses, so that is another positive for the market, if not for the builders.

Falling prices are starting to bring in buyers.  It is a real estate truism that location is the key to the attractiveness of a home.  This is true on a regional, state, metropolitan area or community level.  Some markets that have seen big price declines and sagging sales and foreclosures have seen increases in sales volume. 

Home sales posted the largest monthly gain since 2002 in December, as calmer conditions started to bring buyers out of their bomb shelters following a tumultuous October and November in the financial markets. 

What was really promising is that a greater number of sales contracts were signed in December 2008 than in December 2007.   If we start seeing regular year-over-year improvements, that would be huge.

In the third quarter, homes in California sold at the fastest rate since 2006. Arizona and Nevada saw similar bounces.   Virginia and Florida registered improving sales figures as well.  The reason?  Prices have fallen to levels that buyers are finding irresistible.

And within regions that may not have seen a overall rebound yet, individual neighborhoods are stabilizing and sales picking up.  Consult with your Realtor to learn the current market conditions where you have an interest.

Ultimately, the unleashing of pent-up demand (a number of housing experts are certain it exists) amid the lure of attractive prices and mortgage rates are the elixer that will cure our housing ills.