Despite tax credits and cheap mortgage rates, 2010 shaping up to be tough year for housing

By Alan Zibel, AP
Thursday, September 23, 2010

Home sales on pace to finish year as bad as 2009

WASHINGTON — This year’s home sales are shaping up to be as dismal as last year, despite cheap home prices and mortgage rates that have fallen to the lowest levels in decades.

Sales of previously occupied homes rose last month, but not enough to keep this summer from being the slowest for home sales in more than a decade. And the year is not expected to finish much better.

About 3.4 million previously occupied homes have been sold in the U.S. through August. Most experts expect roughly 5 million to be sold through the entire year. That would be in line with last year’s totals and just above sales for 2008, the worst since 1997.

A few even think sales will fizzle so much this fall that the year will finish worse than 2008, when the country was in the deepest recession since the Great Depression.

“We don’t have great expectations for housing for the remainder of the year,” said Michael Feroli, an economist at JPMorgan Chase, who expects around 5 million homes will be sold this year. “If you’re not confident (in the economy), you’re not going to be buying a home.”

High unemployment and a record number of foreclosures have kept the economy from gaining strength since the recession ended. Those factors have also deterred people from buying homes, with many worried that home prices have yet to reach their bottom.

The median sale price last month was $178,600, up only 0.8 percent from a year ago. Potential buyers are nervous, said Eric Matz, a real estate agent with Coldwell Banker in the San Diego area.

“Nobody wants to see their investment go down after they buy it,” he said. “It’s as tough as I’ve ever seen it.”

Sales of previously occupied homes did increase 7.6 percent in August from July to a seasonally adjusted annual rate of 4.13 million, the National Association of Realtors said Thursday. But July’s sales were the worst in a 15 years, making August the second worst since 1997.

The cheapest mortgage rates in decades haven’t helped. The average rate on a 30-year fixed mortgage was unchanged at 4.37 percent, mortgage buyer Freddie Mac said. Earlier this month, the rate dipped to 4.32 percent, which was the lowest level on records dating back to 1971.

And unlike last year, this fall there are no government incentives to encourage home-buying. Those were offered throughout most of 2009 before ending in April of this year.

The real estate industry pushed hard for those incentives, making the case that they would help the housing market recover. The Obama administration spent $25 billion on the tax credits. But many economists say the government simply encouraged buyers to make their purchases earlier in the year.

Moody’s Analytics projects 5.17 million homes are likely to be sold this year. That’s about level with 5.16 million last year and slightly above 2008’s 4.9 million.

Americans bought more than 6 million homes a year from 2003 to 2006, when the housing market was booming.

Patrick Newport, an economist with forecasting firm IHS Global Insight, doesn’t see the housing market returning to those levels until 2013.

And Newport thinks 2010 will end up as the worst year since 1997, projecting just 4.79 million homes will be sold. The weak job market is dampening sales, he says.

“When they start hiring, people will move more, which means more homes will sell,” he said.

Foreclosures have hurt the market by pulling down prices. About 2.5 million homes have been lost to foreclosure since the recession started in December 2007, according to RealtyTrac Inc. And another 3.3 million homes could be lost to foreclosure or distressed sale over the next four years, according to Moody’s Analytics.

That means buyers have tons of properties to choose from and don’t need to hurry. Even those who want to buy are trying to weed through dozens of properties that are often in bad shape. And buyers often face delays even when they do make an offer.

Valkyrie Barnett, 27, of Seattle, and her husband have been on the home hunt for five months. They’ve seen as many as six houses a week, but most have been foreclosures with severe damage.

They put in an offer on one property in June, but haven’t gotten a reply. The home is a so-called short sale — one in which the bank agrees to let a home sell for less than what the borrower owes on the mortgage. Those sales often take months to complete.

While she’d prefer to buy a home soon, Barnett says time is on her side. “I don’t feel super rushed,” she said.

AP Real Estate Writer Alex Veiga contributed to this report from Los Angeles.

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