Has the Market Hit Bottom Yet?

The sluggish housing market will likely hit bottom in 2009 before picking up slightly by year's end, economists said Tuesday, Jan 20 in a Housing Economic Outlook press conference at the International Builder Show. Chief Economists David Crowe of the National Association of Home Builders, David Berson of the PMI Group, and Frank Nothaft of Freddie Mac offered up their forecasts for the housing market for 2009.

Berson had a more sobering forecast, saying that it would likely take 2 to 3 years for housing prices to stabilize and the market recovery to begin. The housing market currently lacks a much-needed spark: more than 1.5 million empty homes are for sale in the United States (new homes make up about a third of that inventory), housing starts are at record lows (200,000 for single family homes this year; off the 1-1.3 million pace for starts), consumer confidence is dwindling amid rising unemployment and loan delinquency rates, and skyrocketing foreclosures are driving housing prices down leading to excess inventory, the economists say. "It's making it very difficult for builders to sell homes when they have fixed costs to recover," Crowe said. To counter, builders have reduced prices, added amenities to homes at no extra cost to buyers, and more than 80 percent are using incentives to try to move the high inventory. "We do expect 2009 to be the bottom," Crowe said. Housing starts will likely fall another 20 percent and new home sales will drop 14 percent, he predicted.
But there's some good news within all the dim reports, the economists say.
- Mortgage rates are at historic lows. Long-term mortgage rates last Thursday were reported at the lowest in the 50 years they’ve been recorded - 4.96 percent.
- Households are growing. The Echo boomers – children of the baby boomers -- are getting ready to buy homes, ready to make up a big demographic of buyers, which will lead to a higher number of households.
- Housing prices have fallen and affordability is at its best levels since the 1970s, Berson said. Despite a tightening on credit in recent months, Nothaft said mortgages are ample for those who have a down payment, decent credit score, qualified underwriting, and a conforming loan balance. Credit standards are moving back to what they were 10-20 years ago – it just means once you graduate from college you might not be able to buy a house right away.
--By Melissa Dittmann Tracey for REALTOR Magazine