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Housing market likely to pick up next year

The sluggish home sales market should bottom out by the end of the first quarter of this coming year, it was noted in a recent study and report from the National Association of Home Builders.

Despite current market problems, the housing market will start to turn around next year for a number of reasons. The overall economy and job growth will continue to move ahead at a decent pace, core inflation is under control, the credit crunch in mortgage markets is showing signs of easing, the supply-demand equation will be better balanced as builders begin to whittle down their excess inventories, and another Federal Reserve interest rate reduction of a quarterpoint Oct. 31 will help keep mortgage rates low.

That's the prediction of David Seiders, chief economist for the association.

"With the housing sector facing a large backlog of unsold inventory, new construction starts and permits won't begin to move forward until sales firm up. Home sales should bottom out by the end of the first quarter of next year, and housing starts will be up in the third quarter, assuming the inventory overhang stabilizes," he said.

The tightening standards for home mortgages will not derail a national recovery in the housing market, according to the association. However, it will complicate the system for a while.

The negative impact of the new standards on housing markets comes in two forms. First, tightening lending standards have reduced the availability of some loans and raised the price to riskier borrowers. Second, it creates the potential for a cycle of defaults and price declines, depending on the local home price environment and strength of the local economy, the National Association of Home Builders report noted.

The association's shortterm forecast is based on several assumptions – skillful management of monetary policy by the Federal Reserve, maintenance of solid growth in personal income and employment, a manageable wave of home mortgage foreclosures and better performance of mortgage markets going forward.

The report observed that the long-term potential for housing activity is very good.

"By the end of 2009, we may be at a pace of 1.5 million units of new housing production (including manufactured homes). Once we are out of the woods, we should see good growth in front of us – maybe 2 million units per year," it stated.

Send inquiries to Jim Woodard, Copley News Service, P.O. Box 120190, San Diego, CA 92112-0190. Questions may be used in future columns; personal responses should not be expected.

Short URL: http://www.communityadvocate.com/?p=1317

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