The report this week from Wells Fargo Securities’ Economic Group indicates many positive signs for the real estate market in the U,S
Wells Fargo has upgraded its outlook on the housing market in its April forecast, thanks to modest upswings in consumer confidence and home prices nationwide. The forecast, released jointly with NAHB, projects continued recovery through the rest of 2012. They do caution, however, that a full recovery could still be years away.
The increase in consumer confidence, says the report, largely stems from rising employment nationwide; this in turn leads to greater consumer spending, which drives confidence even higher.
- New home sales are expected to increase 12 percent in 2012 and rise nearly twice as fast in 2013. With inventories of new homes at all-time lows, those gains should produce sizeable gains in single-family starts.
- Single-family permits have risen in each of the past five months and are up 23.6 percent on a year-ago basis. Builder remains at its highest level since June 2007.
- Home prices are expected to definitively bottom by the middle of 2012, as the backlog of foreclosures finally begins clear. For properties not in foreclosure, prices have probably already bottomed, but should remain relatively low nonetheless given the competition and perceived competition from foreclosures.
Some of the greatest improvement in recent months has come in markets where overbuilding and speculation were the greatest, most notably Florida, Arizona and, to a lesser extent, Nevada. Prices have fallen so sharply in Florida, Arizona and Nevada that many traditional retiree buyers do not have to wait until they can sell their home in the Northeast or the Midwest before purchasing a home in the sunshine. Many of these buyers tend to transition to these states anyway, spending more time there until they eventually relocate permanently This has led to prices rising again, spurring the housing markets in those areas.
Prices have fallen so far in many markets that affordability is at a record high. One market where this trend is particularly true is Florida. Prices have likely overshot in many Florida markets, including Miami, Daytona and Naples, which has been driving sales as investors search for undervalued properties. While this trend has not necessarily been true for the nation as a whole, it has also been evident in other boom-and-bust states, such as Nevada, Arizona and California.
Housing in the Sun Belt has also seen a modest turnaround, largely driven by economic policy, particularly the Home Affordable Refinance Plan (HARP). With the ability to refinance their mortgages at today’s lower interest rates, many homeowners are working their way toward a better overall financial situation.
Real home prices continue to fall and are now back down to 1999 levels. Price-to-rent ratios are also back down to 1999 levels. We are getting close to finding a bottom in national home prices.
All of these positive signs are especially significant on the heels of a cool winter selling season. As noted in the report, new- and existing-home sales both fell in February from January, dropping 1.6 and 0.9 percent, respectively; pending home sales also declined 0.5 percent.
To read the rest of the forecast, click here