The National Association of Realtors today reported that its forward-looking indicator of existing-home sales fell in November, adding that the “exact timing and the strength of a home sales recovery is a bit uncertain.”
NAR’s Pending Home Sales Index, based on sales contracts signed in November, dropped 2.6 percent from October’s level and was down 19.2 percent from a year ago.
Lawrence Yun, NAR’s chief economist, said there is a pull and tug exerting itself on the market. “On the one hand, we have a pent-up demand from the 4 million jobs added to our economy over the past two years of sales decline,” he said. “On the other, consumers continue to wait for additional signs of market stabilization. … A meaningful recovery in existing-home sales could occur as early as this spring, or it may be further delayed toward late 2008.”
The index in the South rose 2.3 percent in November but is 19.8 percent below a year ago. In the West, the index slipped 2.1 percent but is 18.5 percent lower than November 2006. The index in the Midwest fell 4.1 percent and is 18.6 percent below a year ago. In the Northeast, the index dropped 13 percent and is 19.1 percent below November 2006.
NAR forecasted existing-home sales for 2007 to total 5.66 million, the fifth highest on record, then edge up to 5.7 million this year and 5.91 million in 2009, compared with 6.48 million in 2006. Existing-home prices for 2007 are likely to be down 1.9 percent to a median of $217,600, hold even this year and then rise 3.1 percent in 2009 to $224,400.
New-home sales are projected at 773,000 for 2007, and declining to 669,000 this year before rising to 730,000 in 2009, but well below the 1.05 million 2006, according to NAR. The median new-home price should drop 2.1 percent to $241,400 for 2007, and then rise 0.4 percent to $242,200 this year and gain another 5.9 percent in 2009.
“Some policy changes, such as raising the loan limit on conventional mortgages, would provide a significant boost to home sales, increase liquidity, strengthen home prices and lessen foreclosures, but it is unclear as to if and when the measure will be implemented,” Yun said. NAR strongly supports raising the government-sponsored enterprise loan limit to at least $625,000 from the current $417,000 so that more consumers will have access to lower interest rates on safe conforming mortgages. “NAR estimates that raising the GSE loan limit will result in interest rates savings for an additional 330,000 homeowners,” he said.
NAR also encourages the Fed to make a single lump-sum cut in the Fed funds rate to 3.5 percent at the January Federal Open Market Committee meeting, rather than a series of modest cuts throughout the year. “Consumers are also looking to market-time interest rates, and the expectations of further rate cuts are pushing some home buyers to delay,” Yun said.
According to NAR, the 30-year fixed-rate mortgage is expected to rise slowly to the 6.3 percent range by the end of this year, but an additional cut in the Fed funds rate would lower short-term interest rates.
Growth in the U.S. gross domestic product (GDP) is seen at 2.1 percent in 2007, below the 2.9 percent growth rate in 2006; GDP growth will probably be 2 percent this year, NAR reported.
After averaging 4.6 percent for both 2006 and 2007, the unemployment rate is estimated to rise to 5.3 percent in the second half of 2008, NAR said. Inflation, as measured by the Consumer Price Index, is projected at 2.9 percent for 2007 and 3.1 percent this year; it was 3.2 percent in 2006. Inflation-adjusted disposable personal income is forecast to grow 3.1 percent for 2007, the same as in 2006, and then grow 1.6 percent this year.
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