Mortgage Problems to Dampen
Home Sales in The Short Term

PRESS RELEASE / National Assoc. of Realtors 11sep2007

[Chart below]

WASHINGTON — Tighter credit for home mortgages will measurably dampen home sales in the short term and postpone an expected recovery for existing-home sales until 2008, according to the latest forecast by the National Association of Realtors®.

Lawrence Yun, NAR senior economist, said unusual disruptions in the mortgage market are dampening the outlook for home sales, notably for August and September. “There’s been an unusual hit to home sales, starting in March when subprime problems emerged and more recently when problems spread to jumbo loans, with many potential buyers on the sidelines.

“However, the jumbo loan market is now beginning to settle, and FHA-insured loans are helping to fill the subprime vacuum. The volume of existing-home sales this year will be better than 2002, which was the second year of the housing boom.”

Existing-home sales are projected at 5.92 million this year and then rise to 6.27 million in 2008, compared with 6.48 million in 2006. New-home sales should total 801,000 in 2007 and 741,000 next year, below the 1.05 million in 2006.

“A sharp production pullback by homebuilders deep into 2008 is a healthy trend that will help trim down housing inventory,” Yun said. Housing starts, including multifamily units, are expected to total 1.37 million this year and 1.26 million in 2008, compared with 1.80 million in 2006.

“The mortgage markets will calm further in the months ahead, but it’s important to underscore the fact that conventional loans – the vast majority of available financing – are available to creditworthy borrowers,” Yun said. “Patient buyers in most areas who do their homework will recognize that housing remains a good long-term investment.”

Existing-home prices are likely to slip 1.7 percent to a median of $218,200 this year before rising 2.2 percent in 2008 to $223,000. The median new-home price is estimated to drop 2.2 percent to $241,100 in 2007, and then increase 1.7 percent next year to $245,100.

The 30-year fixed-rate mortgage is projected to average 6.4 percent for the balance of the year and then edge up to the 6.5 percent range in 2008. “We expect the Fed to cut rates two times before the end of the year, which will lower interest rates for prime borrowers and FHA-insured loans,” Yun said. “FHA modernization could buffer the fallout of subprime loans, which would raise our sales forecast in the future.”

Growth in the U.S. gross domestic product (GDP) is forecast at 2.0 percent in 2007, below the 2.9 percent growth rate last year; GDP will probably grow 2.7 percent in 2008.

The unemployment rate should average 4.6 percent for 2007, unchanged from last year. Inflation, as measured by the Consumer Price Index, is estimated to be 2.8 percent in 2007, compared with 3.2 percent last year. Inflation-adjusted disposable personal income is likely to increase 3.6 percent this year, up from 3.1 percent in 2006.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries. # # #

Existing-home sales for August will be released September 25; the Pending Home Sales Index is scheduled for October 2 and the next forecast will be October 10.

source: 11sep2007

Realtors Predict Drop in 2007 Home Sales

ALAN ZIBEL / AP 11sep2007

A trade group for real estate agents on Tuesday lowered its forecast 2007 existing home sales for the seventh-straight month, predicting a drop of 8.6 percent from last year.

The National Association of Realtors' revised monthly prediction calls for U.S. existing home sales of 5.9 million in 2007, down from 6.5 million last year. The forecast was below last month's prediction of a 6.8 percent drop.

This year's sales would be the lowest since 2002, when sales hit 5.6 million. Home sale prices this year are forecast to drop 1.7 percent to a median of $218,200.

Next year, the trade group expects existing home sales to climb to 6.3 million. It forecasts new home sales will fall 24 percent to 801,000 this year and 741,000 next year.

The forecast comes as delinquencies among borrowers with weak, or subprime, credit have risen dramatically over the past year, and other loans are showing weakness as well.

Lawrence Yun, NAR's senior economist, said lower sales are related to the ongoing problems in the mortgage market for people with weak credit and a lack of funding for jumbo home loans above $417,000.

Those loans can't be packaged into securities sold to investors by government-sponsored mortgage giants Fannie Mae and Freddie Mac. Lenders have been charging higher rates for these loans because they are not backed by Fannie or Freddie.

The real estate trade group described a big cutback in the construction of new homes as a "healthy trend" that will reduce inventory. The group projected construction of new homes will fall to 1.4 million this year from 1.8 million last year.

Last week, the NAR said pending sales of existing homes fell in July to the lowest level in nearly six years as borrowers struggled to finalize home purchases, particularly in expensive areas.

Investors around the world have been spooked by the U.S. mortgage market's problems, amid uncertainty about how much they will grow. The Federal Deposit Insurance Corp. estimates that 2.5 million mortgages given to borrowers with weak credit will reset at higher rates and sometimes dramatically higher monthly payments by the end of next year.

The number of homeowners receiving foreclosure notices hit a record high in the spring, driven up by problems with subprime mortgages and heavy job losses in Ohio and other Midwest states.

U.S. Economic Outlook: September 2007