Although the housing market struggled to maintain an even footing in 2011, gradual improvement is expected in 2012 and beyond. Lawrence Yun, chief economist of the National Association of REALTORS®, said home sales should be stronger. "Tight mortgage credit conditions have been holding back homebuyers all year, and consumer confidence has been shaky recently," he said. "Nonetheless, there is a sizeable pent-up demand based on population growth, employment levels and a doubling-up phenomenon, that can't continue indefinitely. This demand could quickly stimulate the market when conditions improve."
Mortgage interest rates should gradually rise from recent record lows and reach 4.5 percent by the middle of 2012. Housing affordability conditions, based on the relationship between median home prices, mortgage interest rates, and median family income, have been at a record high this year. Very favorable affordability conditions will dominate next year as well. Our hope is that credit restrictions will ease and allow more homebuyers to take advantage of current opportunities.
Based on NAR's current projection model, existing-home sales are forecast to rise another four to five percent in 2012 after edging up about one percent in 2011. Existing-home sales would total 4.96 million in 2011. With falling inventory, the median home price should rise in 2012. "Home prices have yet to show a definitive stabilization pattern in most areas. Still, given an over-correction in prices, there likely will be moderate appreciation in 2012," Yun said.
"Once home prices turn positive on a sustained basis, consumer confidence will rise and help the broader economy to improve," Yun added. "If we could maintain sound and reasonable mortgage underwriting standards, the market would be able to avoid a future big boom and bust cycle, but mortgage standards remain overly stringent."
Also speaking was Richard Peach, Senior Vice President at the Federal Reserve Board of New York, who said the economy is under-performing. "Nearly two-and-a-half years since the end of 'the great recession,' the economy continues to operate well below its potential," he said. "Among the significant structural impediments are the legacy of the housing boom and bust, and fiscal contrition at the state and local level."
Peach said the current business cycle remains seven percent below its peak and is longer than other recession cycles since 1953. He added the employment to population ratio is historically low, and there's been a shift in the distribution of income with corporate profits up strongly while employment compensation is down.
Peach believes there is a sizeable level of shadow inventory that will result in rising foreclosures. "My idea is to allocate certificates to 2.5 million service members who served in Afghanistan and Iraq that could be used as a down payment on a foreclosed home in the Fannie or Freddie portfolio," he said. This would help to absorb the inventory and stabilize the housing market.
2012 will be the year that residential brokerage climbs out of the hole of the last six and a half years. Unit sales will increase on a year-over-year basis and while prices will be down in most markets, with increasing employment and incomes and a resolution of the foreclosure pipeline jam, the market will be heading in the right direction