News and Events
February 12, 2007
Real Estate Rebound Likely
Real Estate Rebound
Likely
in Second-half
'07, Economists Say
NEW YORK -- The national housing
market may not have reached bottom yet, but the second half of the year will likely
begin the recovery from a slight downturn that followed a prolonged boom in
sales and home prices, economists generally agreed during a panel this week at
the Real Estate Connect NYC
conference.
"We're going to hit the trough
in the first half of 2007," said Frank Nothaft, chief economist for
Freddie Mac and a panelist for the "Housing Outlook: 2007" session.
Other panelists included representatives from the California Association of
Realtors,
Single-family construction, which
peaked in third-quarter 2005, was 18 percent lower in third-quarter 2006, he
noted. From that level Nothaft said he expects an additional decline of about 8
percent to 10 percent before the market turns around. "We're most of the
way through the correction but we're not at the trough part yet."
Affordability plummeted from late
2005 through 2006, he also noted. "We saw really an affordability crisis
in high-cost markets across the country." This has been lessened, though,
as mortgage rates came down from about July to December, and prices have
"stabilized or dropped" in the high-cost markets, he said.
Every forecast comes with a caveat,
though, and Nothaft said that the ample liquidity in the mortgage market, while
alleviating the affordability pinch, has led some borrowers to take on more
risk than perhaps they should have in financing their homes. "Unfortunately
(some loan products) are not right for every single consumer or every single
borrower out there," he said, and there has been a large growth in the
more-volatile subprime lending market.
"We've started to see some
pickup in subprime default rates recently and I think that will continue in
2007," he said, as default rates for subprime lending tend to be eight to
10 times higher than with prime lending.
In the
Overbuilding has left a large
inventory of properties on the market in some areas, she said -- there is about
a 10-month supply of properties for sale in one region of the state, she said,
though she expects excess inventory to be absorbed within about a year.
2005 and 2004 were peak years in the
state's real estate cycle, she said, and some buyers who relied on
unconventional loans to buy their properties are now stretched beyond their
means as mortgage payments adjust higher. "We are going to see a little
bit of an upsurge in inventory when people can't make those payments."
Other homeowners, who do not need to sell, will "stay put for
awhile," she said, noting that home prices have "plateaued" or
are dropping "a little bit" in many areas of the state.
Susan Wachter, professor of real
estate and finance at
Wachter expressed cautious optimism
about the housing market in the second half of this year. "2007 is in the
bag for the first half … we're near the bottom construction. We're frankly not
at the bottom. I think the second half of 2007 is more in question." She
said she expects housing stats for this year to resemble those in 2006.
"If there is a downside risk,
the risk is not of a slowing economy -- the risk is of inflation." And if
interest rates rise significantly as a result, there is a threat of growing
mortgage default rates and even recession, Wachter said.
Her outlook is generally positive,
though. "People still have to live somewhere," she said. "I
think we're going to be surprised about how prices actually hold up in this
market."
Nothaft said he expects that 30-year
fixed interest rates will be "inching up just a tiny bit" this year,
for an annual average of 6.3 percent, with relatively flat rates for adjustable-rate
mortgages. The federal funds rate, he said, is expected to stay put for awhile.
By Glenn
Roberts Jr.
Inman News
