Existing-Home Sales to Rise by Midsummer

National Association of Realtors, May 7, 2008. A flat pattern in home sales activity should continue for the next couple months before improving over the summer, according to the latest forecast. Lawrence Yun, NAR chief economist, said the extent of an expected recovery hinges on better access to affordable loans. "Things are beginning to improve, but the availability of affordable mortgages is uneven around the country and sometimes within metropolitan areas," he said. "As anticipated, we continue to look for a soft first half of the year, for both housing and the economy, before notable improvements in the second half. Some time is needed for FHA and new conforming jumbo loans to become widely available."

A small but growing number of analysts are saying we may have reached a "bottom" in the housing market. The exact month of this great event--February, March or April--will depend on whom you ask. But there's enough positive opinion among commentators to temper my normal skepticism about rosy predictions like this latest NAR report.

Washington's efforts to lower jumbo rates, and to relax mortgage loan restrictions, have yet to bear fruit. Does that mean such efforts won't be rewarded as the year wears on? It's possible. A lot depends on evolving issues that affect lender confidence: the liquidity crisis, the foreclosure crisis, the high cost of food and fuel and its affect on consumer confidence, and the depth of the current slowdown.

Confidence Falls as Home Prices Decline

The graph shows the S&P/Case-Shiller Home Price Index in the 10 years prior to February, 2008 for the Boston Metro Statistical Area (MSA). The black line represents the home index; the gray line, a bond index. Click to enlarge.

The New York Times, April 30. Americans’ confidence in the economy plunged again this month, and their homes lost value at the fastest rate in two decades, according to two reports released on Tuesday...

In the 12 months ended in February, the S.& P./Case-Shiller home price index, which measures the value of single-family homes in 10 major metropolitan regions, fell 13.6 percent, the biggest decline since records began in 1987.

The slump in home prices was more severe than at the deepest point of the recession of the 1990s, which was the last time values fell so far so quickly.

A broader 20-city index dropped 12.7 percent. Prices are nearly 15 percent off their high in July 2006.

This is discouraging news on the national front, at a time when the immediate Boston-area housing market appears to be holding it own--just.

For the Boston metro statistical area, S&P/Case-Shiller reported that the value of single-family homes declined 4.6% during the year ending February 2008. The Boston MSA is a vast area including five counties in eastern Massachusetts and two in southern New Hampshire.

Of 20 such metro areas covered by the report, half experienced double-digit declines. Boston ranked 5th among the 10 with single-digit losses.

Closer to Boston the housing market appears to be doing better. Major industries here have historically been recession-resistant: universities, hopitals, bio-medical research and computing. Inside Route 128, especially, much of the recent churn in the housing market has been due to their personnel coming and going.

Supporting this view, back in February, the Greater Boston Association of Realtors (GBAR) reported that sales of detached single-family homes and condos rose modestly in Greater Boston from 2006 to 2007, defying state and national trends.

In the 54 communities within GBAR's jurisdiction, there was also stable-to-modest price appreciation in both the home and condo markets. The median selling price of single-family homes in 2007 remained unchanged at $480,000, and the median price of condos climbed nearly five percent to $356,000.

In total sales, 2007 was GBAR's 5th best year on record.

My sense is that the Boston-area housing market is poised for a healthy recovery once the economy begins to stabilize. Pent-up demand for homes and condos remains as strong as ever here.