‘Moderate’ housing recovery forecast for next year

Posted in Real Estate News

National Association of Realtors Chief Economist Lawrence Yun forecast Friday that U.S. home prices will go up from 2% in 2012, part of a gradual improvement that will continue through 2014.

In addition, Yun told reporters at the NAR annual conference in Anaheim that he now pegs the probability of a new recession at 10% to 15% — down from his estimate six months ago of a 30% probability of renewed recession.

Although he believes the U.S. economy would “be teetering on a recession” if the Euro debt crisis expands, he said he doubts that will happen and predicted that the crisis will be contained in Italy.

“The market has been tough, but there are some developing positive signs,” Yun told a mid-day news conference at the Anaheim Convention Center. “As a result, there will be a recovery occurring next year, and it will continue in 2013 and 2014. It is not a great robust expansion. … But it is a moderate recovery.”

Yun also forecast that rents will rise for the next five years.

Specifically, Yun said:

• U.S. home prices will rise 2% to 3% next year, 3% in 2013 and 4% in 2014.
• Existing home sales will increase 4% to 5% in 2012. This year’s sales are projected to be up 1% to 4.96 million housing units.
• Rent will increase 3% in 2012 and 3.5% in 2013 and 2014.

Yun noted that people buy a home today will see some price appreciation in future years. But the recovery will be too slow for people who bought homes at the peak of the market bubble and may not see prices back to what they paid for 10 years or more.

“It will be quite a long time for people who bought right at the peak to gain recovery,” he said.

Yun noted that distressed properties – foreclosed homes and underwater homes – now make up a third of all housing transactions in the U.S. That will remain unchanged next year, and will be only slightly better in 2013, he said.

“Distressed property sales will be with us for the next two years. The question is, will the buyers be there to sop up sales?” he said.

Also speaking Friday was Richard Peach, senior vice president at the Federal Reserve Board of New York, who was less optimistic about prospects for housing.

Citing a host of economic data from income ratios and savings rates to bond yield spreads, Peach concluded that the U.S. economy continues to operate well below its potential. He said also that the bulk of foreclosures and mortgage defaults lie ahead.

“I’m not as sanguine about the future prospects of home prices,” Peach said.