The subprime market collapse and credit crunch has dealt a blow to sales of previously owned homes, the National Association of Realtors reported in a press conference today.
While sales of resale homes were on an annualized pace of 6.17 million in the first half of 2007, sales dropped steeply to a 5 million annualized pace in October and November, and the subprime share of loans fell from about 20 percent of the market in the first half of the year to less than 1 percent in October and November.
With the subprime market shattered and the market for jumbo loans also squeezed, the Realtor group expects the share of Federal Housing Administration loans to rise to about a 10 percent share of home-purchase loans in 2009, compared to about 4 percent this year.
A forecast report released today by the Realtor group anticipates 5.67 million sales of resale homes this year, down 12.5 percent compared to 6.48 million sales last year. That follows an 8.5 percent decline from 2005 to 2006. Sales of resale homes are forecast to rise 0.5 percent in 2008.
Resale-home prices are expected to fall 1.9 percent this year, following a 1 percent rise in 2006 and a 12.4 percent rise in 2005. Prices are projected to gain 0.3 percent in 2008.
New single-family home sales are expected to fall 25 percent this year, from 1.05 million in 2006 to 788,000 in 2007, and to drop another 12.1 percent in 2008, to 693,000.
Housing starts are projected to drop 24.6 percent this year, from 1.8 million to 1.36 million, and to fall another 14.9 percent in 2008, to 1.16 million.
New-home prices rose 9 percent in 2005, 2.3 percent in 2006 and are forecast to fall 3 percent this year and another 0.2 percent in 2008.
The Pending Home Sales Index, a National Association of Realtors gauge of resale-home sales contracts signed in October, fell 18.4 percent compared to October 2006.
Lawrence Yun, chief economist for the Realtor association, said in a statement that existing-home sales are expected to gradually rise in 2008, “but because sales are exceptionally low in the final months of 2007, total sales for 2008 will be only modestly higher.”
Regionally, the index dropped 25.3 percent in the South, 16.9 percent in the West, 11.7 percent in the Midwest and 11.1 percent in the Northeast in October compared to October 2006.
An index score of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined in the index and the first of five consecutive record years for existing-home sales. The national index stood at 87.2 in October, while regionally it was 80.6 in the Northeast, 85.5 in the Midwest, 87.3 in the West and 91.6 in the South.
The 30-year fixed-rate mortgage is expected to rise to 6.4 percent range by the end of 2008, with additional cuts in the Fed funds rate lowering short-term interest rates, according to the Realtor group’s forecast. The forecast anticipates a drop in the Fed Funds Rate to 4 percent for the first quarter of 2008.
Growth in the U.S. gross domestic product is expected to drop to 2.1 percent this year from a 2.9 percent growth rate last year, and to improve to 2.4 percent in 2008.
The unemployment rate is expected to average 4.6 percent this year and to reach 5 percent in 2008. Inflation, as measured by the Consumer Price Index, is anticipated at 2.8 percent this year and is expected to dip to 2.7 percent in 2008, down from 3.2 percent in 2006.
Inflation-adjusted disposable personal income is estimated to match last year’s level of 3.1 percent, and to grow 2.2 percent in 2008, according to the Realtor group’s forecast.
The next monthly report on previously owned home sales is due out Dec. 31, and the next combined forecast and pending home sales report is scheduled for release Jan. 8.
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