Forecasting the future
In years past, the National Association of Realtors (NAR) has taken it on the chin for past Chief Economists painting a rosier picture than reality depicts, but since Lawrence Yun took the reigns, forecasts have appeared to be carefully crafted to most closely match reality. Yun follows the numbers to tell the real estate story, even when it is gloomy.
Today, NAR released their U.S. Economic Outlook outlining their projections for the performance of the American economy from unemployment rates to home sales, with what we feel is a tone of cautious optimism.
Unemployment in 2012
The first forecast that caught our eye is that NAR predicts that in the third quarter of 2011, the unemployment rate will remain at 9.1, unchanged from 2011 Q2, but they forecast that by 2012 Q4, unemployment will drop to 8.8.
While not a major change, it is interesting to note that no wild forecasts of a sharp rise or fall in unemployment is to be seen. Good news doesn’t appear to be in the 2012 forecast for unemployment, which is what we consider to be the largest factor to the weak housing market (no jobs and no job security means no buying or keeping houses).
Dramatic rise in interest rates
NAR predicts a pretty dramatic rise in interest rates after an extremely long time of historically low rates. In 2011 Q2, the 30-year fixed rate was at 4.7%, which they expect to climb to 4.8% in 2011 Q3, all the way up to 5.6% in 2012 Q4. With government regulations changing, this prediction seems quite fair.
Housing to improve?
Housing indicators are all projected to improve by the end of 2012, but only after taking a minor dip in 2011. For 2011 Q2, existing home sales had dipped from Q1, but sales are projected to slowly improve over the next several quarters, with a predicted 10.6% increase between 2011 Q2 and 2012 Q4. With unemployment projected to remain high, this feels a little optimistic, but not dramatically so.
Has the new home sector hit bottom?
NAR also predicts that new home sales and housing starts will improve in 2012 after a slight decline in 2011. Comparing 2011 Q2 with NAR’s projected 2012 Q4, new home sales and housing starts are predicted to rise by 45% each which feels overly optimistic at first, but given the rise in builder confidence, the low inventory rates and the slight recent improvements, it is conceivable that the new home sector could improve at this rate in addition to the dismal performance in recent years. In other words, NAR predicts that the new home sector has hit bottom this year and should improve.
NAR’s most conservative prediction
What we found to be NAR’s most conservative predictions is regarding median home prices. Although NAR predicts new and existing home prices will rise by the end of 2012, the rates of improvement are small. The housing affordability index is also predicted to improve by the end of 2012, both of which spell out better health for the real estate sector.
So, is NAR right?
The forecasting from NAR is interesting and while some economic indicators are predicted to improve drastically, those sectors don’t have anywhere to go but up. Sales and pricing are projected to improve, but NAR’s numbers are cautiously optimistic and in line with what we believe to be possible for 2012.