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Buying, Selling, Borrowing, And
Refinancing: The 2007 Outlook
Following a somewhat difficult year in the
housing market, what can we expect from 2007? Is the economy going to
give the housing market a boost? Will interest rates continue to climb?
Are home prices going to level off? Will homes begin to sell once again?
If you’re hoping for a return to the crazy
days of 2004 and 2005, don’t hold your breath. However, the good news is
that the worst may be behind us. The real estate market—in
conjunction with the general economy and interest rates—should remain
stable throughout 2007.
As the economy is usually a good predictor
of real estate conditions, the “soft landing” of the economy over the
last 6-12 months should translate into a similar leveling off of the
housing market. Overall, the economy is expected to grow at a moderate
rate of 3 percent with inflation hovering around the 2.2 percent mark in
2007 (down from 3.2 percent in 2006). The unemployment rate is expected
to increase only slightly, up from 2006’s 4.6 percent to 4.8 percent.
The economic slow-down that we experienced throughout 2006 will continue
into 2007, but at slower pace and thus the housing market should follow
suit.
As always, the health of the real estate
market will depend heavily on interest rates—and that may not be an area
of concern in 2007. Although the Federal Reserve raised the prime a
number of times dating back to 2004, interest rates have finally settled
and the Fed is predicted to take no further action in the near future.
After averaging between 6.2 and 6.6 percent in 2006, the 30-year
fixed-rate mortgage should remain in roughly that same range throughout
2007. As long as housing inventory remains high, interest rates should
stay at a manageable level.
In terms of specific housing data, all signs
point to a stabilizing of the market and, in some cases, a slight
uptick. Builders have already begun slowing their pace of construction
which will help average time on the market from increasing in 2007.
Also, following the trend from the last half of 2006, median home prices
have been flat or have even fallen; prices in the 202 largest
metropolitan areas declined 2 percent in the last half of 2006. As for
home sales, the National Association of Realtors is predicting
existing-home sales to gradually rise throughout 2007 and new-home sales
should start to rise again in the middle of the year.
In looking at the big picture, we’re
certainly not going to see a return of the red-hot real estate market,
but the market in 2007 is shaping up to be steady and stable. Also, keep
in mind that the market conditions in the foreseeable future will be
very close to the “normal” conditions that we’ve seen in years’ past. ∆
Sources: National Association of Realtors,
Mortgage Bankers Association, Center for Housing Policy. |
