Written by: Robyn A. Friedman, Sun Sentinel
Published January 8, 2007
Real estate is bound to be one of the most talked-about issues again this year.People this year are likely to be pondering when the real estate market will recover, what direction interest rates will go and where new development or redevelopment will occur.Just before Christmas, three leading housing economists held a roundtable to discuss some of the many questions that will arise regarding housing in 2007. With a new Congress in control and a housing slowdown under way, what’s in store for home buyers and sellers? Which way will mortgage rates go? How will the slowdown in the housing market affect the overall economy? Here’s a summary of what David Seiders, David Lereah and David Berson said in a recent teleconference.David Seiders, chief economist for the National Association of Home Builders: In 2004 and 2005, there was an “unsustainable housing boom,” with sales levels and price appreciation running above what he considered to be sustainable. As a result, 2006 brought an “impressive correction” that might threaten the nation’s economic expansion. Mounting mortgage delinquencies and foreclosures will affect consumer spending. Home mortgage rates will remain stable through 2007, with fixed-rate loans topping out at 6.5 percent. Sales of new single-family homes, which peaked in the third quarter of 2005, bottomed out in the fourth quarter of 2006 and will remain flat this year. Residential remodeling will grow through 2007 and 2008 due to a record level of homeowner equity.David Lereah, chief economist for the National Association of Realtors: Some economists are predicting that the housing market will get worse before it gets better, but Lereah thinks we’re pretty close to bottoming out. “That’s good news,” he said, because it means the contraction in the housing market will be shorter than it was in the previous two contractions we experienced the last 20 years. There is about a seven-month supply of existing homes for sale throughout the nation, but in some local markets — and he singled out South Florida as well as California — there are double-digit months of home supplies for sale.That means these areas will have a more prolonged correction. For the past three months, prices have dropped on existing-home sales, and he expects further declines for the next few months. But that’s not entirely bad; by bringing prices down, sellers are encouraging some buyers to return to the market. Most contractions in the real estate market are due to recessions and job losses, but this one is not. It’s due to affordability problems and investor flight, so the long-term prognosis is good. A quarter of the nation’s markets — those that had a big boom but are now “experiencing pain” — will undergo price corrections this year, but the other three-quarters of the country should be expanding in 2007.David Berson, chief economist for Fannie Mae: The housing downturn is “close to an end; it will not continue throughout 2007.” Prices and sales will continue to decline slightly, but by mid-2007, sales will start to pick up and prices will stop declining. Real estate is highly regional. Even if prices decline in some parts of the country, growth in other areas will sustain the industry as a whole and the national economy. Mortgage originations for purchases will decline this year, but refinancing should rise as people swap fixed-rate mortgages for adjustable rates or draw equity from their homes.Robyn A. Friedman is a freelance writer. Send tips to her at RAFriedman@att.net.