What to Expect In the 2007 Housing Market

From Realtor Magazine On-Line

What to Expect In the 2007 Housing Market


Unusual weather patterns and problems in the subprime lending marketplace are creating challenges in assessing housing market conditions, but a recovery is likely this year, according to the latest forecast by the NATIONAL ASSOCIATION OF REALTORS®. David Lereah, NAR’s chief economist, says there’s some ambiguity about the current housing market. “Our goal each month is to fine-tune the forecast based on the latest housing data and a variety of economic indicators, but extraordinary weather variations are skewing home sales and clouding the picture,” he says. “Underlying trends point to a housing recovery in 2007, but it will take a couple months for us to get a better handle on it. Existing-home sales are expected to slowly improve from what appears to be the cyclical low last fall, but we think there will be some additional pain in the new home market, which hopefully will start to rise later in the year.”

2007 Housing Projections
Here are some of NAR’s predictions for the coming months in housing:
Existing-home sales are projected at 6.42 million this year and 6.66 million in 2008, compared to 6.48 million last year. The national median existing-home price is projected to rise 1.2 percent to $224,500 this year, following a 1 percent gain in 2006. “Although existing-home sales will be marginally reduced due to subprime lending restrictions, they should be gradually rising this year and next,” Lereah says. “However, total sales this year will be fairly close to 2006 because last year started high and ended low.”

Lending problems in the subprime marketplace, which continue to grow, will also play a role in housings' recovery. “[This] could inhibit future housing activity and further dampen our forecast,” Lereah says. “Even so, these problems are likely to be contained and not spill over into the prime mortgage market.”

The 30-year fixed-rate mortgage is expected to rise to 6.7 percent by the end of the year. Last week, Freddie Mac reported the 30-year fixed rate dropped to 6.14 percent. “Over the last few years, mortgage interest rates have moved in surprising directions — the unexpected dip we’re seeing now and a rise in mortgage applications are positive signs,” Lereah says. “With soft home prices and lower interest rates, affordability has improved for home buyers and that is encouraging them to get into the market.”

New-home sales are forecast at 950,000 in 2007 and 981,000 next year, down from 1.06 million in 2006. The median new-home price should grow 1.7 percent to $249,600 in 2007, following a 1.9 percent increase last year. Housing starts will probably total 1.50 million this year and 1.56 million in 2008, in contrast with 1.80 million units last year. Overall, stronger gains are probable in 2008, with new-home prices growing 3 percent and existing-home prices rising 3.1 percent.Weather Cools the MarketFor critics who don’t understand the weather impact on seasonally-adjusted sales, Lereah says they'll likely be reminded about the consequences throughout this spring. Here’s what’s happened and how it’s likely to play out: In December, unusually mild weather brought out shoppers and January existing-home sales rose, Lereah explains. “However, a sudden chill in January slowed shopping activity relative to December and pending sales, based on contracts, fell," he says. The biggest weather impact from February has yet to be seen. “February’s winter storms brought markets to a halt in much of the country, and it was the coldest February since 1979 — that should drag sales down in March,” Lereah says. “This means we may not see an upturn in closed transactions before May 25 when we report sales for April.”Meanwhile, the following are some other factors to watch that can affect the market:

The unemployment rate will probably average 4.7 percent this year; it was 4.6 percent in 2006.

Inflation, as measured by the Consumer Price Index, is forecast at 2.1 percent in 2007, down from 3.2 percent last year, while growth in the U.S. gross domestic product is seen at 2.5 percent this year, compared with 3.3 percent in 2006.
Inflation-adjusted disposable personal income is expected to rise 3.1 percent in 2007, up from a gain of 2.6 percent last year.

— REALTOR® Magazine Online

Mortgage Rates Remain at 3-Month Lows

From: Realtor Magazine On-Line

Mortgage Rates Remain at 3-Month Lows

A lack of definitive economic data helped keep mortgage rates at the lowest point since mid-December, Bankrate.com reports. Mortgage rates declined for the fourth time in the past five weeks, with the average 30-year fixed mortgage rate dropping to 6.19 percent. According to Bankrate.com's weekly national survey of large lenders, the 30-year fixed rate mortgages had an average of 0.3 discount and origination points.The average 15-year fixed rate mortgage, popular for refinancing, was unchanged at 5.95 percent. On larger loans, the average jumbo 30-year fixed rate inched higher to 6.42 percent. Adjustable rate mortgages were mixed, with the average 5/1 ARM moving up to 6.04 percent and the average one-year ARM sliding to 5.94 percent.Mortgage rates remained low on evidence of slower economic growth. Last week, the fourth quarter Gross Domestic Product was revised sharply lower. This week, both productivity and factory orders came in lower than forecast. Although a survey of the manufacturing sector was stronger than expected, the larger services sector slowed notably. The prospects for slower economic growth helps buoy demand for Treasury securities, pushing bond prices higher and yields lower. Mortgage rates are closely related to yields on long-term government bonds.Fixed mortgage rates are notably lower than last summer when the Fed last raised interest rates. At the time, the average 30-year fixed mortgage rate peaked at 6.93 percent, and a $165,000 loan carried a monthly payment of $1,090.00. With the average 30-year fixed rate now 6.19 percent, the same loan originated today would carry a monthly payment of $1,009.50. Fixed mortgage rates are a refinancing alternative for adjustable rate borrowers facing sharp payment adjustments.

Source: Bankrate.com

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