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Buyers returning to US market

Home sales appear to be bottoming out with lower home prices attracting buyers in many areas of the country, according to the National Association of Realtors...

David Lereah, NAR's chief economist, said the housing market is showing signs of life and that sales may be leveling out.  “Many potential home buyers who have been taking a wait-and-see attitude or taking their time and being methodical in the search process are being enticed by lower home prices,” he said.  “Given a positive economic backdrop of lower interest rates and job creation, we expect sales activity to pick up early next year.”

Existing-home sales are forecast to be fairly stable in the fourth quarter and sales for all of 2006 are expected to drop 8.9 percent to 6.45 million – still the third strongest year after consecutive records in 2004 and 2005.  New-home sales are forecast to fall 17.3 percent this year to 1.06 million, the fourth highest year on record.  Housing starts should be down 10.9 percent to 1.84 million in 2006.

With a recent correction in the market, the national median existing-home price is likely to rise 1.6 percent to $223,000 for all of 2006; its anticipated prices will remain slightly below year-ago levels before gaining positive traction in the first quarter of 2007.  The median new-home price is projected to decline 0.2 percent to $240,500 – largely the result of builder price cuts to move unsold inventory.

A buyer's market

NAR President Thomas M. Stevens said that current market conditions present a unique opportunity for buyers.  “The supply of homes on the market is the highest we've seen in over 13 years, and mortgage interest rates are experiencing an unexpected decline,” said Stevens. “The 30-year fixed rate is hovering around 6.3 percent, and sellers in most of the country are now showing a willingness to negotiate.”

The NAR believe that the 30-year fixed-rate mortgage will probably average 6.5 percent in the fourth quarter but will trend up modestly in 2007.  The unemployment rate should average 4.8 percent in the fourth quarter.  Inflation, as measured by the Consumer Price Index, is expected to be 3.4 percent for all of 2006, while growth in the U.S. gross domestic product is forecast at 3.3 percent.  Inflation-adjusted disposable personal income is likely to grow 3.4 percent for 2006.

Ben Bernanke, chairman of the Federal Reserve, is currently more cautious about the health of the US property market, however.  This month he said that a "substantial correction" was under way in the US housing market but that this had so far not had a large effect on the wider economy.  Mr Bernanke said that it was very difficult to predict when the housing market would stabilise because people bought houses both to live in and as investments.

However, on a more upbeat note, Mr Bernanke said, "I do think that there are some strong fundamental underpinnings for the housing market."  He then added, "To this point, other parts of the economy are remaining relatively strong. In particular nonresidential construction has been quite strong and to some extent has offset that decline in residential construction."

The National Association of Realtors is America's largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.