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Sales Forecast Brighter in
'07
By
Michael Giusti · Bankrate.com
Anyone
selling a home in the past year has likely suffered
through some pretty stormy markets, but economists say a
break in the clouds may be on the
way.
That's
because the highly anticipated "real estate bubble" that
began deflating in mid-2005 has been losing air for the
past year and a half, and may finally be out of air. And
while some markets suffered through some deep slumps,
forecasters are now predicting the worst may be
over.
"It
appears we are getting very close to bottom," says David
Lereah, chief economist for the National Association of
Realtors.
Lereah
is one of several economists who agree that sales data
show the national existing home sales market is on the
verge of regaining ground.
"Sales
have hovered for the last four months, scratching bottom
and then coming up, scratching bottom and coming up
again. We are comfortable this is now the bottom," he
says.
But
before you put away that umbrella, it might be best to
check your local forecast; scattered showers may persist
in certain markets for at least another
year.
Over
the past few months, Lereah says 75 percent of the
nation's housing markets have expanded. Unfortunately,
the ones that are still falling are posting losses large
enough to bring the national numbers down with
them.
"So,
you can't generalize. You can't say 'We are in this
sharp recession,' when it is only 25 percent of the
markets that are losing ground," Lereah
says.
Driving
factors
What
makes the current housing slump so hard to forecast is
that the factors driving the contraction are different
than those driving past slowdowns, says Dave Seiders,
chief economist for the National Association of Home
Builders.
"You
have to put this in context," he says. "This is not a
downswing connected to a recession. This one is special
because the drivers are unusual."
In
previous contractions, the entire economy hit a bumpy
patch and mortgage rates were in double digits, Lereah
says.
"This
is not the case now," he
says.
The
primary problem now plaguing the housing market is one
of oversupply, rather than a general economic malaise.
In general, the markets that are suffering the most now
are the ones that benefited the most during the run-up
in prices.
"Markets
that boomed in the last five years boomed too much, and
now they are coming down," Lereah says.
Prices
were high, and builders responded by adding a flood of
new homes to the market. When prices continued to rise,
investors saw potential and bankrolled even more homes.
When buyers stopped buying, the markets that flew the
highest had the farthest to
fall.
Molly
R. Boesel, a Fannie Mae economist, wrote in a February
commentary that sales will likely post another negative
year in 2007, but that most of the decline is expected
from a reduction in investor demand. Consumers, on the
other hand, will likely jump back into the market.
The
Federal Open Market Committee of the Federal Reserve
agreed when it issued its Jan. 31 statement. In that
statement, governors said they were encouraged by
"tentative signs of stabilization" in the housing
market.
"These
are the first stages to getting the markets back into
balance," Seiders says.
Stifling
inventory
But
even as consumers get back in a buying mood, housing
markets won't necessarily spring back to previous
heights. Part of the reason is because there is still a
large inventory on the market, Lereah says.
One
way economists rate homes sales is by calculating how
many months it would take to sell all the homes listed
for sale at the current buying rate. At last count,
Lereah says it looked like there were between 6.8
months' and 7 months' worth of homes sitting on the
market right now. He says that number will likely fall
to between 6.6 months' and 6.5 months' worth by year's
end. But that is still above the 5.5- to 6-month
inventory that signals a balanced market.
Looking
foreword, Lereah says 2007 will likely see an additional
1 percent fall in sales -- but only compared with 2006
numbers, meaning sales will have hit bottom and begun to
rebound by year-end.
"We
are not looking for a big expansion, but it will be an
expansion -- a sluggish expansion," he
says.
Michael
Giusti is a freelance writer based in New
Orleans. |