Sales of existing homes rose in January, reaching the highest level in seven months, according to the NATIONAL ASSOCIATION OF REALTORS®.

Total existing-home sales — including single family, townhomes, condominiums, and co-ops — increased 3 percent to a seasonally adjusted annual rate of 6.46 million units in January from an upwardly revised pace of 6.27 million in December. Sales were 4.3 percent below the 6.75 million-unit level in January 2006. David Lereah, NAR’s chief economist, says observers shouldn’t overreact to the sales gain or to other short-term effects. “Although we’re expecting existing-home sales to gradually rise this year, and buyers are responding to the price correction, some unusually warm weather helped boost sales in January,” he says. “On the flip side, the winter storms that disrupted so much of the country in February could negatively impact the housing market.

Despite all the news headlines over the past year about the housing market bubble and housing market slump, the final figures for 2006 actually look quite respectable. Home prices squeaked out a gain of 1.1% for the year. That means that in the 39 years of the National Association of Realtors tracking sales and prices, each and every year has posted positive home price growth. Existing-home sales in 2006 posted 6.48 million units – an 8.4% decline from 2005, but still the third best year on record. The more cyclical new home sales fell by 17.3% to 1.06 million in 2006 for the fourth best year on record. All in all, not that bad. 

Existing-home sales in most states declined from year-ago levels in the fourth quarter, marking the likely bottom for the current housing cycle, according to the latest quarterly survey by the NATIONAL ASSOCIATION OF REALTORS®. Prices dipped slightly overall, as sellers were more willing to negotiate.

“This information confirms 2006 was the year of contraction,” says NAR Chief Economist David Lereah. “Hopefully the fourth quarter was the bottom of this current business cycle.”

He says home sales are leveling at historically high levels, and examination of data within the fourth quarter shows home prices began to stabilize near the end of the year. “When we get the figures for this spring, I expect to see a discernible improvement in both sales and prices,” he says.

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Forbes Magazine money manager Kenneth L. Fisher discounts the notion of a soft landing. He says housing isn’t going to land at all — because it’s already accelerating.

“In the last six months housing stocks are up 24 percent, well-ahead of the overall market,” Fisher says. “If housing were destined to fall apart in 2007, these stocks wouldn’t be so strong now.”

Fisher says stocks in Pulte Homes, Toll Brothers, and Beazer Homes are worth considering.

Other analysts are similarly optimistic. Horton, the country’s biggest home builder, earns “buy” recommendations from Goldman Sachs, AG Edwards, UBS, and Citigroup. Even WCI Communities, whose Florida developments sit at the center of the homebuilding black hole, has seen its shares gain almost 50 percent since last summer, thanks in part to buying by mogul Carl C. Icahn.

Buyers are beginning to respond to more favorable housing market conditions, with existing home sales expected to steadily increase into 2008, according to the latest forecast by the NATIONAL ASSOCIATION OF REALTORS®.

“After reaching what appears to be the bottom in the fourth quarter of 2006, we expect existing-home sales to gradually rise all this year and well into 2008,” says David Lereah, NAR’s chief economist.

Existing-home sales, which reached the third-highest total on record of 6.48 million in 2006, are forecast at 6.44 million in 2007 and 6.64 million in 2008.

New construction, on the other hand, will take longer to recover. Following a fourth-best 1.06 million in 2006, new-home sales projected to decline to 961,000 this year and then rise to 971,000 in 2008. “We look for that sector to turn around later in the year,” Lereah adds.

Among the other key highlights of NAR’s new forecast:

• Housing starts are likely to total 1.52 million in 2007, down from 1.80 million units in 2006, and then increase to 1.56 million next year. “When new home demand begins to catch up with supply, builders will slowly increase construction – probably in the second half of this year,” Lereah says.
• The 30-year fixed-rate mortgage is forecast to rise to 6.7 percent by the second half of the year. Freddie Mac reported the 30-year fixed rate at 6.14 percent in December, but it has been trending up since. “Mortgage interest rates remain favorable, and a gradual rise means potential buyers have some time to weigh purchase decisions,” Lereah says. “When existing-home supplies become more balanced between buyers and sellers this spring, we’ll see some modest price gains.”
• The unemployment rate is seen to average 4.7 percent in 2007, compared with 4.6 percent last year. Inflation, as measured by the Consumer Price Index, is projected at 2.0 percent this year, down from 3.2 percent in 2006, while growth in the U.S. gross domestic product is likely to be 2.8 percent in 2007, down from 3.4 percent last year. Inflation-adjusted disposable personal income will probably rise 3.7 percent in 2007, up from a gain of 2.7 percent in 2006.

The end of month supply of homes is continuing to decrease as Sold homes remain a little more balanced. A sign that as we enter 2007 the gap between Active and Sold is narrowing and eventually creating a larger demand in homes. As less home builders are releasing new homes and interest rates remain relatively unchanged, more buyers will be jumping into the market as the economists continue to point to 2007 as the shifting year in the real estate market leading to a strong 2008. These graphs below continue to point to a balanced market as the economy remains strong. If you have different views on the markets path, we would love to hear your input.

Active Homes at end of month:

Sold homes per month

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