Nationally, Existing-Home Sales to Trend Upward in 2008

A forward-looking indicator of home sales throughout the country rose during October, the second monthly climb in a row, portending improvement in sales numbers in the coming months. The indicator predicts sales volume, not price trends, but obviously they are related. The National Association of Realtors^® projected today that existing-home sales would trend up in 2008 based upon a near-term rise in pending home sales.  However, a recovery for new-home sales is unlikely before 2009.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in October, increased 0.6 percent to an index of 87.2 from an upwardly revised reading of 86.7 in September.  It was the second consecutive monthly gain, but remained 18.4 percent below the October 2006 index of 106.8.  Lawrence Yun, NAR’s chief economist, said “The broad trend over the coming year will be a gradual rise in existing-home sales, but because sales are exceptionally low in the final months of 2007, total sales for 2008 will be only modestly higher than 2007.”

Regionally, the Pending Home Sales Index in the Northeast jumped 16.0 percent in October to 80.6 but is 11.1 percent below a year ago.  In the West, the index rose 8.4 percent to 87.3 but is 16.9 percent lower than October 2006.  The index in the Midwest slipped 1.4 percent in October to 85.5 and is 11.7 percent below a year ago.  In the South, the index dropped 7.8 percent in October to 91.6 and is 25.3 percent below October 2006. In explaining these regional trends, NAR Economist Yun said: “The improvement in the Northeast reaffirms a trend apparent for some months now that shows signs of recovery, noteworthy because that was the first region to slump, and the gain in the West indicates some easing of interest rates for jumbo loans.” Still at 16.9% below last year, the Western region has a ways to go before recovery can be expected, in my opinion.

Yun expects price appreciation, measured as a national median, to return to more normal patterns in 2009, perhaps rising one or two percentage points above the rate of inflation.  With two-thirds of the metropolitan areas showing price increases right now, the national median price is down because there are fewer sales in high-priced markets. One of those higher-priced markets is Flagstaff, where I do not expect price recovery until 2009.

According to NAR, existing-home sales are likely to total 5.67 million in 2007, making this year the fifth highest on record, and are likely to rise to 5.70 million in 2008. In 2006, the peak of the market in many parts of the country, including Flagstaff, there were 6.48 million existing homes sold.  Existing-home prices should be down 1.9 percent to a national median of $217,600 for all of 2007, and then rise 0.3 percent to $218,300 in 2008. This price forecast for 2008 is a slight improvement over last month’s projection which had no price rise for 2008.

On the new-home sales front, builders have cut back their production of homes. New-home sales are forecast by NAR at 788,000 this year and 693,000 in 2008, down from 1.05 million 2006. NAR sees no sustained improvement for new homes until 2009.