Report: Housing Market Has Turned Corner

How many times have you heard that?

Just the same, a new report says that home buyers waiting for prices to come down to apply for a home loan may be wasting their time.

“What we’re likely to see is more of a flattening of prices,” said Nicolas P. Retsinas, director of the Joint Center for Housing Studies, commenting on the new State of the Nation’s Housing report from the Harvard University Joint Center for Housing Studies.

“Prices might go down a percent or two or go up a percent or two,” he said. Condominiums, however, “might be more vulnerable to a decline.”

Existing home sales, which dropped precipitously in 2006 and into 2007, should start to rebound at the end of this year, Retsinas said.

But that may be tempered by higher mortgage rates as well as tighter home loan lending standards. Lenders in the last few years supplied loans to borrowers with bad credit and offered “affordability” products with lower initial payments to buyers anxious to get into the market.

That increase in bad credit home loan availability, according to the report, pushed up prices further. Without those borrowers in the market, demand for housing slows and prices drop, Retsinas said.

Another factor that pushed up prices was the demand by home buyers entering the market as prices appreciated, hoping to get a piece of the American dream before prices increased more.

Home builders also attempted to meet the increase in demand, but buyers who couldn’t wait for new product ended up in bidding wars for houses already on the market, driving up prices even more.

Variable rate home loans, which offered initial discounts, are resetting to higher rates and increasing monthly payments. Some recent home buyers who haven’t had time for their equity to increase may be forced to sell their homes at a loss or lose their homes, another factor in inventory.

Those who have had their homes for five or six years have built up a lot of home equity, Retsinas said.

“I think the message here is as long as they don’t have to sell their homes (they haven’t lost their jobs) they can wait it out and at some point, the underlying demand for housing will return and they will do OK,” Retsinas said.

“I think this was a wake-up call. At the base of this is that homes are for living in, not investing in.”

The decline in prices convinced many investors to pull out of the market or move their investing to other parts of the country, he said, thereby adding even more housing stock.

“They’re in it to make money and make money quickly,” Retsinas said.

He doesn’t expect investors to return “for a good, long time.”

“We’re starting to see signs that sales are starting to pick up a bit, inventories are down a bit, and we’ve sort of turned the corner,” he said.

That doesn’t mean, however, there will be double-digit inflation again in 2008, but he doesn’t expect to see dramatically reduced prices.

The question of whether to apply for a home mortgage loan, and making homes and apartments more affordable, he said, is complex.

“It’s not just the cost of housing; it has to do with wages and a disconnect between the labor market and the housing market. By that I mean, in our economy, the fastest growing jobs are often in the service sector, which traditionally has paid lower wages,” Retsinas said.

“We’ve got to find a bridge between the labor market and the housing market. I’m not recommending anything, but to extrapolate, it means that one of the parties that needs to get engaged in the issue of affordable housing is employers.

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