Economists Hop on Recovery Bandwagon

Real Estate Economy Watch

18 August  2012

Bank of America’s announcement yesterday that it has significantly improved its home price forecast for the current year made headlines, but in fact the bank joins a growing list of housing economists who have seen the light and hopped on the recovery bandwagon.

B of A improved its price forecast for the year from a .5 percent increase over 2011 to a 2 percent increase, citing shrinking inventory and a shift toward short sales.

Perhaps the biggest about face on prices came from Zillow’s Chief Economist Stan Humphries, who said in February that home values, as measure by the popular site’s automated valuation mode, would fall 3.7 percent compared to 4.7 percent last year, and he didn’t forecast a national bottom for housing prices until 2013.

In late July, Humphries greatly revised his opinion, stating:  “The housing market has finally turned a corner. In Q2, we saw continued momentum in the housing recovery, despite of some economic turmoil, like flagging job growth numbers and sovereign debt issues in Europe. Nationally we hit a bottom in the first quarter of the year, and the Zillow Home Value Forecast shows that 67 of the 156 markets it covers will experience an increase in home values over the next 12 months. Nationally, Zillow forecasts home values will rise 1.1 percent.”  That’s a net change of 4.8 percent in six months.

Though Zillow now believes the bottom was reached in the first quarter, the 114 economists it surveys every quarter for its Home Price Expectations Survey weren’t quite there yet the last time the survey was conducted in June.  The economists’ consensus was that home prices would fall 0.4 percent this year and bottom in 2013, which was more optimistic than their previous expectation of a 0.7 percent decline recorded in the March survey.  When the survey goes out again in the September, price expectations are expected to continue to improve.

Both of the GSEs, Fannie Mae and Freddie Mac, have upped their take on sales and prices this year and next. “The Freddie Mac House Price Index for the U.S. showed a brisk 4.8 percent gain from March to June 2012, the largest quarterly pickup in eight years; the national index posted a June-to-June rise of 1 percent, the largest annual appreciation since November 2006. Further, the improvement was relatively broad-based. In fact, 34 states and the District of Columbia posted higher home values during the 12 months through June 2012, the largest number of states registering positive annual appreciation since April 2007,” stated Freddie’s economist in the August Economic Outlook. Freddie now forecasts prices flat in 2012 and up 2 percent next year, an improvement over its June forecast of a .5 percent drop in 2012 and a 1.5 increase in 2013.

Fannie Mae is also increasingly bullish on this year marketplace.  Within the past month, its economists have changed their price forecast from negative to positive, signaling that they believe prices have bottomed.  Fannie’s July forecast sees prices rising 1.1 percent this year and another 1 percent next year.  That’s a significant change from its June forecast, which has prices declining by 1.2 percent in 2012 before increasing next year.  Fannie also now sees existing home sales up 8.2 percent to 4.6 million this year, the same level forecast by the National Association of Realtors.

“The housing market continues to show positive signs.  Compared to the same time last year, home sales increased by 9 percent and single-family housing starts are approximately 20 percent higher, though the levels are still considered below healthy norms.  Residential investment is expected to increase this year but from a very low base, and is expected to contribute to economic growth for the first time since 2005. According to Fannie Mae’s June 2012 National Housing Survey, homeowners are showing greater confidence in one-year-ahead home price expectations, and their broad attitudes regarding the housing market continue to improve.  The share of polled consumers who say they would buy a home if they were going to move increased by 6 percentage points to the highest level seen in the survey’s two-year history.  This is likely due in part to low interest rates and the assumption that home prices have hit bottom,” stated Fannie in its July Economic and Housing Outlook.

Kiplinger’s experts go so far as to suggest housing will lead the overall economy in the second half of the year.  “Housing will be one of few brighter spots in a slow-growing economy in the second half of 2012. Though the recovery will be modest and uneven, home sales will rebound from a recent slowdown, housing starts will grow significantly, and home prices will rise in the coming months, racking up the first consistent increases in six years.   As a result, housing will add to economic growth this year for the first time since 2005,” states Kiplinger’s current economic outlook.

“Look for sales of existing homes to speed up a bit in the second half of 2012. After unexpectedly dipping to a seasonally adjusted annual rate of 4.37 million in June, the pace of sales through year-end should rebound to levels similar to those in April and May. With low interest rates and an uptick in prices likely to lure a few more buyers into the market, annual sales will total about 4.6 million, up from 4.3 million in 2011. Though that’s up from the low point for sales — a 3.3 million annual rate in July 2010 — it is far from the 7 million sold in all of 2005. New-home sales will be up about 20% in 2012, but still only about a third of the 1 million or so typical before the crash,” said Kiplinger.

Virtually the only skunks remaining at the recovery picnic are Fiserv and Moody’s, which both use Case-Shiller data.  Fiserv’s latest forecast, issued today, predicts that nationwide home prices will dip another 1 percent between March 2012 and March 2013 even though home prices are rebounding in some parts of the country. However, Fiserv, which supplies the FHFA Housing Price Index, is forecasting that nationwide home prices will climb 5 percent between March 2013 and March 2014.

Moody’s Analytics Case-Shiller forecast for August raised the national price forecast slightly, reflecting better-than-expected changes in the housing market over the last few months. However, Moody’s predicts price appreciation to be modestly stronger in Case-Shiller’s second quarter 2012 report, followed by mild declines through early 2013. It has moved back its prediction for the price trough from fourth quarter 2012 to the first quarter of 2013.