Monday, March 01, 2010

BRIGHTER OUTLOOK FOR CHICAGO-AREA HOUSING FORECAST FOR 2010

With mortgage rates hovering near record lows, and the housing market showing broad signs of stabilizing at the end of last year, more optimistic forecasts for a spring home-market rebound in 2010 are showing up on the radar, analysts say.

Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed-rate mortgages averaged 4.93 percent in mid-February, down from 4.97 percent a week earlier. Last year at this time, the 30-year rate averaged 5.04 percent.

“Mortgage rates have eased, and economic data suggests that the housing market may be in a slow state of recovery,” said Frank Nothaft, Freddie Mac vice president and chief economist.

With inflation expected to remain low, a new Freddie Mac forecast predicts long-term interest rates will likely also remain relatively low. “Fixed-rate mortgage rates will likely hover within a narrow band centered on 5 percent for much of the first half of 2010, helping to maintain the high level of home-buyer affordability that has characterized the housing market for much of the past year,” Nothaft said.

The National Association of Realtors (NAR) reported that existing home sales rose in 48 states and the District of Columbia between the third and fourth quarters of 2009, and 67 metropolitan areas saw positive annual house price growth in the fourth quarter, more than double that in the third quarter.

“The momentum gained by the home buyer tax-credit stimulus and plans for more streamlined at-risk loan modifications as well as recent positive reports related to jobs and the economy should carry forward into the 2010 housing market,” said Michael Onorato, president of the Illinois Association of Realtors.

Because the tax credit has been extended through April 30th and broadened to include existing home buyers, Freddie Mac said it is likely that additional buyers will accelerate their purchase decisions in the first half of 2010, leading to a rebound in sales. “The housing outlook is much better for 2010,” said economist Geoff Hewings, director of University of Illinois Regional Economics Applications Laboratory (REAL). “The downward trends that we’ve been watching over the last year and a half are beginning to bottom out.”

However, the IAR is forecasting that median home prices in the Chicago area will continue to slip at a moderate rate in the first half of 2010. The median home price in the Chicago area in 2010 is expected to be $184,900, down 4.4 percent from the 2009 forecast of $193,500.

“The most critical factor for housing in 2010 is what happens to employment,” said Hewings. “People who have jobs are becoming much more risk-averse to buying a more expensive house. They worry about keeping their job and wonder if can they sell their existing home.”

“At the national level, we expect the housing market to weather the growth in distressed sales without further significant setbacks, though risks remain,” Nothaft said.

“Until those foreclosed properties work their way through the system we won’t have a price recovery that will match the sales recovery,” Hewings predicted. The pace of recovery in the Freddie Mac forecast is well below the growth following most recessions over the past half-century.

For example, following the 1974-75 recession and the double-dip recessions in the early 1980s, economic growth surged 7 percent or more for sustained periods, more than twice the pace we expect over the coming year.