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Wednesday, May 25, 2011

Analysts Hold Guarded, but Positive Forecast for Existing-Home Market

Sales of previously owned homes – which in recent months have been buoyed by a growing share of distressed REO and short sales – are expected to remain on an upward, albeit uneven, track through this year and next, according to economists at the National Association of Realtors (NAR) midyear meeting in Washington this week.

Lawrence Yun, NAR’s chief economist, characterized existing-home sales as “underperforming” by historical standards, but he sees gradual improvement ahead.

“If we just hold at the first-quarter sales pace of 5.1 million, sales this year would rise 4 percent,” Yun said, but he was quick to add that the remainder of the year looks better than the results seen in the first three months of 2011.

“We expect 5.3 million existing-home sales this year, up from 4.9 million in 2010, with additional gains in 2012 to about 5.6 million – that’s a sustainable level given the size of our population,” Yun explained.

Data released by NAR earlier in the week showed that bank-owned homes and pre-foreclosure short sales made up 39 percent of the first quarter’s existing-home sales. According to the trade group’s study, these distressed

properties are selling for discounts in the 20 percent range and attracting investors looking for a bargain.

“A huge volume of cash sales, supported by the recovery in the stock market, show that smart money is chasing real estate,” Yun said.

He notes that this buyer makeup implies there could be a sizeable pent-up demand from traditional buyers who would need to take out mortgages.

“The problem isn’t with interest rates, but with the continuation of unnecessarily tight credit standards that are keeping many creditworthy buyers from getting a loan despite extraordinarily low default rates over the past two years,” Yun said.

According to NAR’s chief market analyst, if credit requirements returned to normal, safe standards, home sales would be 15 to 20 percent higher.

Yun expects the median existing-home price to remain near $170,000 over the next two years, which would mark four consecutive years of essentially no meaningful price change.

Frank Nothaft, chief economist at Freddie Mac, holds similar views on the outlook.

He expects home sales overall to rise 5 percent by the end of the year compared to the annual sales of 2010.

“National home price indices are close to a bottom and prices are likely to bottom sometime this year,” Nothaft said.

Refinancing activity in 2011 will be only half of what it was last year, according to Nothaft, and as a result, he says banks may become more willing to lend to traditional homebuyers, which could set loose some of that pent-up demand Yun spoke of from buyers who would be borrowers.

3:16 pm est

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Linda F. Reeves-REALTOR®
Texas Realtor
ERA Colonial Real Estate