Saturday, December 26, 2009

Easier Money, Steadier Sales

2010: The Year of Growth


If 2009 was the year of economic recovery, 2010 will be the year of growth, says Yun.



Existing-home sales in 2009 rose to an estimated 5 million units for the year, a 2 percent increase over the 4.9 million sales in 2008. For 2010, Yun is forecasting sales of 5.7 million units, a 13.6 percent increase.



The key to recovery in 2009 was the lower end of the existing-home market. Fueled by the huge number of distressed sales—which drove down prices nationally by an average of 13 percent for the year—buyers returned to the market looking for bargains.



Also helping were continuing low interest rates (5.2 percent on average for 2009) and the first-time home buyer tax credit, which the IRS says had been tapped by an estimated 1.4 million households halfway through 2009, a figure that includes 350,000 to 400,000 consumers who wouldn’t have bought without it, according to NAR and other industry estimates. Close to 2 million buyers were expected to use the credit by the end of November, according to industry projections.



As a result of the sales pick-up, inventory for homes priced at $250,000 and under, which is well under the $417,000 conforming loan limit, improved to just 4.6 months in 2009, according to NAR data. That’s below what’s considered sustainable and has been inviting multiple bids in high-demand markets, including parts of California. Even the inventory for homes priced at $500,000 and below, which is well within the $729,750 conforming loan limit in high-cost areas, is at a sustainable 5.2 months, NAR data show.

In part because of the difficulty of obtaining jumbo financing, no such turnaround was seen in the upper-end housing market. Indeed, nationally the inventory of homes above the $729,750 threshold remained above 40 months throughout 2009.



But Yun is forecasting improvement in 2010, as the strong performance at the lower end helps kickstart the upper-end market. In time for the spring selling season, spreads between jumbo and conforming loans are narrowing considerably. In the fourth quarter of 2009, spreads narrowed to about 70 basis points from about 150 basis points a year earlier, and that trend is expected to continue with more lenders returning to the jumbo space.



The new-home market is expected to improve as well. NAR estimates sales this year to jump to 549,000 units, up from 397,000 units in 2009, and housing starts to reach 752,000, compared to 564,000 units last year.

Yun and Varvares make clear that, even under their best-case scenarios, the performance of 2010 will lag behind what they consider to be a market in equilibrium. Although Yun’s estimated 2010 sales volume of 5.7 million is close to what it was in pre-boom 1999, that level is low when the country’s population, now 30 million larger than it was a decade ago, is factored in. Ideally, sales should be closer to 6 million, he says.



One reason for the subpar performance is continuing slow household formation, a key precursor to home sales. Until young people stop doubling up in rental units or living with their parents in such large numbers, sales will continue to lag, Yun says. That shift will be fueled by job growth and consumer confidence.



Once household numbers increase, sales may ignite because the market is seeing a lot of pent-up demand. More than 16 million renter households at the end of 2009 had sufficient income to buy a median-priced home, up from just 11 million in 2000, before the boom, Yun says. Once they get off the fence, sales will start heading up to a level reflective of the population.

http://www.realtor.org/rmonews_and_commentary/economy/1001_outlook_2010

1 comment:

  1. This article is a conducive source of information on home buyer tax credit for home buyers! Thanks.

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