2009 Housing Forecast

2009 National Housing Forecast

he said. “Going forward, a great deal depends on the state of the“Going forward, a great deal depends on the state of the financial system in general and the real estate finance situation in particular, as well as the flow of distressed sales through the market. We expect sales of distressed properties to peak in early 2009 – a critical factor in the housing market that directly impacts the timeframe for stabilization in the median price.

“Looking ahead, home prices and favorable interest rates in 2009 will contribute to gains in affordability,” Brown said. “However, we need to move through the current financial crisis and restore the flow of credit so that qualified buyers are able to take advantage of improved affordability and successfully purchase homes.”

The median home price in California will decline 6 percent to $358,000 in 2009 compared with a projected median of $381,000 this year, according to the forecast. Sales for 2009 are projected to increase 12.5 percent to 445,000 units, compared with 395,600 units (projected) in 2008.

“Sales in 2008 will be ahead of last year by 12 percent, with a further increase of 12.5 percent expected in 2009,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “However, the next couple of quarters in late 2008 and early 2009 will be marked by seasonal decreases in activity, with a pickup expected by the second quarter of next year. At 445,000 units sales projected in 2009, the sales environment will be well above the low point of 265,000 units in late 2007.

“The median price will be influenced through the balance of 2008 by the typical seasonal decrease in home prices as well as ongoing downward pressure from distressed sales,” she said. “For all of 2008, the median price is expected to fall by 31.7 percent from $558,100 to $381,000. Next year, we’re projecting that the median price will show a 6 percent decline to $358,000.

Leading the way...® in California real estate for more than 100 years, the CALIFORNIA ASSOCIATION OF REALTORS®

By Lawrence Yun, NAR Chief Economist, March 2008

Economy: Pent Up Demand

Firing Up the Fence Sitters

With the economy weakening, we're unlikely to see today's slow home sales pace pick up in the near future, but the picture isn't uniformly bleak; sales have appeared to stabilize around a 5 million annualized sales pace, suggesting we might be seeing the formation of a bottom.

What's more, there continues to be considerable pent-up demand for homes. Although job growth is slowing, with the pace of new jobs sinking to about 83,000 a month in 2006, job growth has been vastly outperforming housing, with more than 4 million jobs created since the housing market peak in 2005. Aggregate household wealth is also up during that period, by some $1.4 trillion.

Historically, the housing market sees one new buyer for every two new jobs created, but this time around that hasn't been the case.

So, although consumers have the wherewithal to buy--particularly since home prices nationally are down and interest rates remain low thanks to the Federal Reserve's dramatic rate cut in January--many are sitting on the fence. It's a fair guess that consumers are waiting for home prices and even interest rates to fall even further.

Clearly, housing continues to underperform. But as long as demand keeps growing, it's just a matter of time before the housing market turns around and becomes an engine for, rather than a drag on, the economy.

When Will The Housing Market Turn Around?

A generally accepted forecasting model is that the number of months of housing inventory existing on the market at a point in time is indicative of the strength or weakness in the housing market. Historically, the number of months of inventory that indicates a stabile market is 6 to 8 months. Less than 6 months indicates there will be upward pressure on prices. And more than 8 months indicates there will be downward pressure on prices. However, according to Richard Greene, Economist and Professor of Real Estate Finance, as reported in the California Association of Realtors magazine, February 2008, "we are outside the model." "The key statistic to watch is the months supply of homes available for sale. When that number starts shrinking, the bottom is coming."

Below is a compilation of the total inventory on March 31, 2008, total pending sales for all of March and the average number of months inventory; plus market activity/net inventory change for the month of March, 2008. (updated monthly)

# off Market Homes

Date

Area

# Listings

# Pending Sales

# Months Supply

# New Listings

Net change

3/31/08

W Santa Cruz

6.67

-7

3/31/08

E Santa Cruz

7.00

3/31/08

Live Oak

5.58

-12

3/31/08

Capitola

6.25

-5

3/31/08

Soquel

25.5

3/31/08

Aptos

114

6.33

-8

3/31/08

Scotts Valley

5.57

-8

3/31/08

Combined

415

8.85

160

194

-34

3/31/08

Watsonville

180

7.20

-32

3/31/08

San Lorenzo Vlly

4.71

-6

According to the above mentioned housing model and the above numerical summary, the the Santa Cruz area prices would be relatively stabile. However, as stated above, this market is "outside the model." For the first time in the past 30+ years, there is a two tiered market. The first tier consists of prime properties, desirable properties and, due to location, condition or other similar factors, the lesser desirable properties. This tier of properties has had stable prices, with even a slight increase in value for some of the prime properties (near the beach or University) to a loss in value of up to approximately 10% for the lesser desirable properties. The second tier consists of pre-foreclosure, post-foreclosure and distress sale properties. These properties are selling at a discount of up to 25%. The first tier group made up about 2/3's of the pending sales in March. The foreclosure and distress sale properties made up the other 1/3+/- of March pendings.

This study has been updated monthly on the Investor Resource page

Senior Real Estate Specialist