The National Association of Realtors (NAR) predicted the housing market would improve by the end of 2010. In September 2010, Lawrence Yun, NAR’s chief economist, said that he expected the housing recovery to be “slow and gradual because of lingering economic uncertainty.”
The 2010 housing market has been characterized by lower sales volume than a year ago. However, the median price increased 0.08 percent in August from a year ago. The number of homes sold nationally in August increased 7.6 percent from July, 19 percent below the August 2009 level.
August closings reflect sales made in April when the homebuyer tax credit was still available. We could see lower sales volume and median sale prices moving forward. In California, home sales for 2010 are predicted to rise 2 percent from the 2009 level. The median sale price is expected to increase 11.5 percent from a year ago to $306,500 and another 2 percent in 2011, according to the California Association of Realtors. The state’s median sale price was $522,700 in 2005.
Research by CoreLogic indicates that 24 percent, or more than 11.3 million homeowners, have negative equity. Negative equity occurs when the unpaid mortgage balance exceeds the market value of the property. According to CoreLogic, homeowners with negative equity are unlikely to reach positive equity until 2015 or early 2016.
Foreclosures are one of the factors putting brakes on a housing market recovery. According to NAR, distressed sales accounted for 34 percent of homes sold in August, up from 32 percent in July and 31 percent in August 2009. Foreclosures will continue to impact the housing market in 2011.
According to RealtyTrac Inc., a foreclosure data company, banks took back 816,000 homes during the first nine months of 2010. Complicating the picture is that many mortgage lenders recently put a freeze on foreclosures to review documentation to make sure they hadn’t cut corners when they evicted homeowners.
Some experts think the stall in marketing and completing sales of foreclosed properties will have little impact on the housing market. Others think that if the freeze lasts for months, it will have a negative impact on home prices — pushing sales scheduled to close in 2010 into next year and making it impossible for some properties to be ready for the spring 2011 market. Already, some lenders have resumed processing foreclosures.
Some analysts think home prices could decline another 15 to 20 percent before stabilizing. Bill Wheaton, an economist at the Massachusetts Institute of Technology’s Center for Real Estate, disagrees. He thinks the housing market will make a strong comeback and demand will return to pre-recession levels in 2011.
A recent nationwide survey done by Fannie Mae revealed that most Americans think the housing market has hit bottom. Some 67 percent believe that housing is a safe investment. Most consumers think that it’s still a buyer’s market. However, they are taking a more cautious approach to homebuying.
During a housing recession, builders stop building new homes. The Census Bureau reported that the number of new-home starts fell from 1.7 million in 2006 to less than half that amount in 2009. Wheaton expects the unsold inventory will be sold or occupied by 2013, and that it will take a long time for construction to meet demand. This could put upward pressure on home prices. Construction will provide jobs, which will have a positive impact on the overall economy.
No one knows for sure when the housing market will turn around or how aggressive the recovery will be. It’s impossible to time the market. If you need to sell, you may do better selling sooner rather than later, depending on your local market. And as always, buyers should buy for the long term and below their means.