What’s Coming for the Housing Market?

Experts offer their predictions via the Council of Residential Specialists

Regina Ludes reported these news clips on the Certified Residential Specialists’ Blog on Thursday, 18 April 2013. I’ve got some thoughts about these predictions:

While the housing market appears to have rebounded, several industry experts believe the recovery may be short-lived, according to CNNMoney.com. For starters, the recovery is being led by investors who are taking advantage of low interest rates and depressed home prices to buy up properties, says Dean Baker, co-director of the Center for Economic and Policy Research. “I’m worried that some of the big jumps in prices are driven by the same sort of speculation that drove the [original] housing bubble,” Baker says. Once the interest rates and prices start rising, investors will likely pull back, he says.

I disagree with this analysis because investors now aren’t forming a much higher percentage of buyers than in the past. In 2009 and 2010, investors accounted for 30% and more of home purchases.  Individual investors purchased just 19% of the homes sold in March, according to recent statistics from the National Association of Realtors.®

Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, a Washington, D.C.-based think tank, says the housing recovery may continue, but at a much slower pace because the economy is still not strong enough to sustain it. He says he is especially concerned about jobs. Only 88,000 jobs were added in March, the weakest showing since June 2012, and an estimated half a million Americans have simply stopped looking for work. Once the employment picture improves, a strong pent-up demand for homes could emerge, Bernstein says.

I’m not sure what Bernstein means by a “much slower pace,” but I do agree that the recovery pace we’ve had is about the recovery pace we are going to have for the foreseeable future. And, that’s primarily because of unemployment and the slow economy. Here’s my latest report on the pace of Flagstaff home sales.

Another reason for a possible slowdown in the housing recovery: $85 billion of government spending cuts expected this summer will hurt homeowners, says Mark Zandi, chief economist for Moody’s Analytics. Those cuts, which include unpaid days off for federal workers, cuts in unemployment compensation and decreased military spending, combined with the expiration of payroll tax breaks that occurred earlier this year, may lead to job and income losses for many Americans. In the meantime, historically low interest rates are bound to start rising soon, which will make it less affordable for many Americans to own a home, adds Bernstein.

I agree that laying off more workers – whether they work for the government, private employers with government contractors, or just private companies – is not good for the economy and therefore not good for housing. I think interest rate rises are not coming until the end of the year, however. That does make this year the year to buy to keep your home payments low.

Consult with local Flagstaff mortgage lenders.

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