The housing market’s climb from the depths of depression is continuing at an uneven pace, and economists say signs point to further slow improvement in 2011.
“The trend is starting to move in the right direction,” says Diane Swonk, chief economist at financial services firm Mesirow Financial.
A string of new housing data is building optimism. Existing home sales in November rose 5.6% from October to a seasonally adjusted annual rate of 4.68 million, the National Association of Realtors reported Wednesday. Demand has steadily improved since bottoming in July following the end of the buyers’ tax credit.
New-home sales data for November, out today, are also expected to show slight improvement after an October that made the third-worst showing in 47 years, says IHS Global Insight. Last week, the Commerce Department reported that housing starts rose almost 4% in November, the first uptick in new home production since August.
Despite signs of improvement, economists and home builders say next year will remain tough.
Home prices, down almost 30% from their 2006 peak, will fall 5% to 7% more before potentially rebounding later in the year, says Patrick Newport, IHS Global Insight economist. Banks will repossess 1 million U.S. homes next year, on top of 1 million this year, says market researcher RealtyTrac.
The glut of foreclosed homes drives down home prices overall and hurts demand for new homes. Last month, foreclosed homes sold at a 15% discount to non-distressed sales, NAR said.
Home builder PulteGroup expects 2011 to be on par with this year — the worst for home builders in decades, says CEO Richard Dugas. Yet he says the “groundwork is laid for a recovery,” because of low interest rates, low home prices, some job creation and improving consumer confidence.
Toll Bros., the largest U.S. luxury-home builder, is “cautiously optimistic” about 2011, says CEO Douglas Yearley. Toll has spent $400 million buying land in the past year — increasing its land bank for the first time in four years, he says.
Job growth is the key to housing’s recovery. Economist Newport expects the U.S. economy to add about 960,000 jobs this year, 2.2 million more in 2011 and 2.9 million more in 2012. But it lost 8.5 million during the recession.
Credit for home buyers is another issue. Almost a quarter of homeowners with mortgages owe more on their homes than they’re worth, making it tough to sell and move up. “Without people trading up or down, demand is limited,” says Joel Naroff, chief economist at Naroff Economic Advisors.
This article was published on Dec. 22, 2010 in USA Today, article link.
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