If the Federal Reserve continues to hold steady on interest rates, the housing market should bounce back by 2008, leading economists said Wednesday.
Some of the nation’s most prominent housing-market watchers gave their economic forecasts at the National Association of Homebuilders’ semi-annual conference, where the consensus was that home prices will bottom out next year and begin appreciating by 2008.
The market’s recovery depends largely on two factors, said Mark Zandi, chief economist for Moody’s Economy.com. In addition to the Fed’s actions, the housing market downturn must not “bleed out” to other segments of the economy, such as consumer spending and employment.
“The approximate reason for the crash was tightening of the Fed’s monetary policy,” Zandi said. The Federal Reserve raised interest rates 17 straight times beginning in June 2004 in an effort to resist inflation and combat rapidly rising home prices, but the housing market didn’t start its slide until late 2005.
“[The downturn] was delayed by the fact that lenders turned aggressively to lending out credit,” Zandi said.
“That circumvented their policies … but the Fed won the day.”
The Fed held interest rates steady Wednesday for the third month in a row and economists predicted Fed Chairman Ben Bernanke will continue on that path.
Consumer spendingand the job market also appear to remain largely unaffected so far by the housing market correction — especially in the Washington region, where unemployment numbers are some of the lowest in the nation.
But, “if the housing market [rebound] doesn’t stick to the script, the Fed will start tightening pretty quickly,” Zandi said, while agreeing with other economists that the housing market downturn should remain self-contained.
While the housing market is expected to bounce back in 2008 with single-digit growth, economists said it will get worse before it gets better. At the national level, home prices depreciated — rather than slowed in appreciation — year-over-year in August. Locally, prices took a negative hit for the first time in August as well, dipping nearly 4 percent in Northern Virginia.
Growth from the beginning of 2006 should balance out declines for an overall price appreciation in 2006.
But 2007 is expected to close out with an overall decrease in prices, something that hasn’t happened since the Great Depression.
Local sales mirror national trends
Home prices fell for the fifth consecutive month in August and are anticipated to decline into the fall as the housing market, once white-hot, continues its fall from grace.
The average home price dipped by 1.7 percent, from $229,000 in August 2005 to $225,000 last month, according to figures released Monday by the National Association of Realtors.
“This is the price correction we’ve been expecting,” said David Lereah, chief economist for the National Association of Realtors.
“With sales stabilizing, we should go back to positive growth early next year.”
Locally, sales patterns mirror national trends, but at much higher prices.
In Northern Virginia, for example, the average sale price dropped for the same period by nearly 4 percent, from $558,880 to $537,196.
Sales are expected to level off in the near future and head toward single-digit appreciation, but not reach the frantic double-digit growth the region saw in the last five years. – Katie Wilmeth
