'False bottom' for housing ahead?

Where's the housing bottom?

While nobody seems confident in a prediction, Lawrence Yun, the National Association of Realtors' chief economist who last year predicted the turnaround would begin in late 2008, tried to throw his 1.2 million-member trade group a bone by showing that pending home sales slipped 4.6 percent nationwide in September from August but remained 1.6 percent higher than a year earlier. He also stated that some of the areas hardest hit by the slowdown, including Florida and California, showed "consistent, solid gains" and that NAR's housing affordability index is averaging 19 percentage points higher this year than in 2007.

But today's sales are not like those of the past. Based on a recent NAR survey, 35 to 40 percent of all recent home sales across the country were "distress sales," such as bank-owned foreclosures or "short" sales in which the lender agrees to take less than the amount owed. In Florida, distress sales could be as high as 50 to 60 percent of all recent closings.

"The depth of the recession will be dependent upon whether we have a housing market recovery," Yun said. "If we have a housing market recovery, that will begin to get the economy going. If we do not, we may be seeing a recessionary condition we have not seen for 30 years."

NAR recently presented Congress with a Four-Point Housing Stimulus Plan to help stabilize the housing and mortgage markets. The package suggests using $130 billion of the $700 federal billion bailout funds on housing, specifically earmarked for an interest-rate buydown and more tax credits. The features:

• A one-percentage-point, interest-rate buydown on fixed-rate loans for all buyers. The reduction reportedly would result in approximately 840,000 additional home sales and reduce the inventory of homes by as much as 20 percent. Inventories currently at a 9.9-month supply would decrease to approximately a 7.5-month supply. The buydown offer would be available for a specific time period.

• Eliminate repayment of the first-time homebuyer tax credit and expand the credit to all homebuyers. Currently, the $7,500 must be repaid over 15 years.

• Make the 2008 increased mortgage loan limits permanent.

• Halt federal bailout funds to banks with no strings attached. Permanently ban banks from entering into real estate brokerage or development.

NAR predicts the 30-year fixed-rate mortgage should average 6.2 percent in the fourth quarter, rise gradually to 6.5 percent during the second half of 2009 and then average 6.7 percent in 2010. The unemployment rate is expected to be 6.4 percent in the fourth quarter and then average 7 percent in 2009.

According to NAR, existing-home sales are expected to total 5.02 million in 2008, rising to 5.32 million next year and 5.62 million in 2010. For all of 2008, home prices will have fallen by more than 20 percent in Las Vegas, Phoenix, and many California and Florida markets, while many markets in middle America will experience little change. Wide variations in home-price movements will continue in 2009.

On the new-home front, NAR predicts that sales are likely to total approximately 487,000 this year and 413,000 in 2009 before rising to 520,000 in 2010. Housing starts, including multifamily units, will probably total 936,000 units in 2008 and 781,000 next year, then increase to 886,000 in 2010.

Other economists tend to concur regarding the upward move in rates.

"I don't think there is any way we can avoid higher interest rates, especially higher mortgage rates," said John Tuccillo, a highly regarded housing consultant and former NAR economist. "The federalization of Fannie and Freddie will shrink the secondary market and make it harder to get a mortgage. That said, I think the approach being taken by the President-elect has the potential for righting the economy. If the economy heals, watch real estate come surging back."

Ted Jones, chief economist for Stewart Title, said not only will rates rise but he is also concerned that "pent-up sellers" will re-enter the market once sales activity improves.

"There are a lot of people who would put their home on the market if they felt they could sell it," Jones said. "We just don't know exactly how many of them are out there. When they do plan to sell it will add to our inventories. So, we may run into a false bottom before we find the real one."

Next week: International business possibilities shine a bright light for agents.

To get even more valuable advice from Tom, visit his Second Home Center.

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