Wednesday, July 9, 2008

National Association Of Realtors Market Forecast Recap

Yesterday the National Association of Realtors (NAR) issued their latest real estate market forecast and it contained both negative and somewhat positive news about the market. The Pending Home Sales Index (PHSI) fell by 4.7 percent in May and existing home prices are projected to fall 6.2 percent this year; however, NAR also projects a recovery in 2009 with a gain of 4.3 percent on existing home prices.

This optimism about the real estate market in 2009 could have a lot to do with the $300 billion housing stimulus bill on the table right now. “The overall decline in contract signings suggests we are not out of the woods by any means. The housing stimulus bill that is still being considered in the Senate is critical to assure a healthy recovery in the housing market, jobs and the economy,” Lawrence Yun, NAR chief economist said in the NAR news release.

As far as regions go, the West appears to be the strongest right now. The PHSI for the West only dropped 1.3 percent in May and is at 97.5. The Northeast, which saw a decline of 2.9 percent in May, is sitting at 77.0. The Midwest decreased by 6.0 in May and is now at 78.6, while the South, which fell 7.1 percent in May, sits at 84.5.

According to this report, it would seem that we are nearing the bottom of the housing market troubles, yet I would advise caution on that front. We must remember that while NAR is a respected organization, they are biased. They want to see the real estate market rebound because their business is assisting real estate agents, and real estate agents obviously want--and need--a healthy real estate market. That being said, I would look at these numbers as an optimistic projection. In reality, things are likely to be a little worse than NAR is projecting, and that is likely especially true with the 4.3 percent housing price gain they are forecasting in 2009.

While I believe that the market is likely to start turning around sometime in 2009, I more imagine something more like a leveling out than a gain. So rather than seeing the sharp price drops, the market will find its equilibrium, where it will probably sit for most of 2009. In 2010, I think we may start to see some modest price gains, but nothing like before the real estate market crashed. When I do my investment projections, I don’t like to even include appreciation in the numbers, but if you do, I wouldn’t go above 1 to 3 percent. In my mind, if you can’t make the deal work without adding in appreciation, then you shouldn’t do the deal.

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