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2012 housing outlook

By Judy Martel ·
Wednesday, December 28, 2011
Posted: 4 pm ET

Fasten your seatbelts for another "bumpy ride" in the housing market next year, says Freddie Mac's chief economist Frank Nothaft.

The mortgage company, now administered by the government along with Fannie Mae, published its outlook for 2012. While mortgage rates are projected to remain at record lows at least through the middle of the year, there will be fewer loans made for single-family homes. However, mortgages for multifamily homes will increase.

The outlook from Freddie Mac doesn't tell us anything we don't already know. Housing inventory includes a glut of foreclosed properties that is depressing the market. High unemployment only makes it worse, with more distressed properties resulting from income loss when workers are laid off.

Freddie Mac predicts that the economy will improve by 2.5 percent next year and the unemployment rate will remain higher than 8 percent.

A week ago there were some positive signs that the market was headed in the right direction as we move into 2012. Builder confidence rose as more potential buyers emerged and the Commerce Department announced that housing starts rose 9.3 percent in November to a seasonally adjusted annual rate of 685,000 units, the highest since April 2010.

But then the National Association of Realtors announced that existing home sales were actually 14.3 percent worse than originally reported, due to errors in data-collection dating back to 2007. That means distressed properties account for a larger share of the market and put downward pressure on nondistressed home prices.

What do you predict for the 2012 housing market?

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December 29, 2011 at 12:19 pm

I think three things need to happen for the housing market to improve signigicantly:
1. Market psychology and the current "herd mentality" towards renting and not owning needs to change.
2. Employment and with it, incomes need to be out of their "funk".
3. Supply, including the shadow inventory needs to be worked off.

In short, we're in a vicious cycle that is feeding on itself. It might take ten years before we return to appreciation as great or greater than the inflation rate.

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December 28, 2011 at 9:04 pm

"What do you predict for the 2012 housing market?"

My crystal ball says, "Bleak".

Housing is the consumer version of the manufacturing index - both require major capital investments (which stems from consumer confidence...also a bit depressed).

Both are relatively stagnant with spotty regional growth. I would guess ~5 years before a noticeable percentage uptick and ~10 years before we break even to previous market values of 2004-2005.

The housing bubble caused far worse damage than the tech bubble and will require comparable time to recoup.

Lest we forget so soon, the NASDAQ peaked intraday 3/10/2000 at 5, = 2,590...still 50% off from its high!!! We have a VERY LONG way to go.

December 28, 2011 at 9:02 pm

How are we supposed to TRUST anyone from Freddie Mac? Really.....last time I knew they were a bunch of crooks. 2013 will be the year for a pick up when a new president is elected and sworn in. We need jobs created so people will save the down payment and pay off debt to buy a house. THAT is why this market is awful. I still do not understand why the foreclosures effect current pricing IT MAKES NO SENSE AT ALL