By James R. Hagerty
From The Wall Street Journal Online
The National Association of Realtors, which has long proclaimed that U.S. home prices haven't declined on a nationwide basis since the Great Depression, now says they are likely to do just that this year.
Lower Expectations
• Realtors expect the first nationwide drop in home prices this year since the Great Depression.
• Lenders' tighter credit in the wake of the subprime-mortgage rout is making it harder for some people to buy homes.
• Rising foreclosures will add to supply in some glutted markets.
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• Realtors are seeking more- lenient terms for borrowers to qualify for Federal Housing Administration-backed loans.
The Realtors, which had been projecting as recently as February a 1.9% increase in the median home price this year, now say prices for previously occupied homes will slip 0.7% this year from the 2006 level.
The trade group's revised outlook, which puts it in line with a growing consensus that home prices will fall at least modestly this year, underlines how quickly expectations about the market have changed in light of a recent tightening of credit by mortgage lenders. Before the subprime mortgage problems blew up recently, said Lawrence Yun, an economist for the Realtors, the group expected the housing market to begin recovering by the middle of this year. Now, he says, recovery is unlikely before late this year.
In 2006, the median price rose 1.1% from a year earlier to $222,000, even though the monthly median prices reported in the second half of 2006 were down modestly from year-earlier months.
David Lereah, the Realtors' chief economist, says he revised downward the 2007 forecast because of tighter lending standards that have taken effect over the past few months in the wake a steep rise in defaults on subprime-mortgage loans, which are loans made to people with weak credit records or high debt in relation to income. The more cautious stance of lenders will mean some people who want to buy homes will find it impossible to get loans on reasonable terms. At the same time, a rise in foreclosures will add supply to housing markets that are already glutted in much of the country.
Thomas Lawler, a housing economist in Vienna, Va., expects an even steeper fall, of 4.3%, in the median price of houses this year.
Prices won't fall throughout the country, of course. Home prices generally have been falling in parts of Southern California, Arizona, Nevada, Florida, the Rust Belt states and Massachusetts. But they have continued to rise in some cities, including Houston, Portland, Seattle and New York, where job growth has been relatively strong and supplies of unsold homes generally lean.
Falling prices make it tricky for buyers and sellers, accustomed to adding a few percentage points to last year's levels, to figure out how much a home should fetch now. Christopher J. Olsen, a financial planner in Lodi, Calif., has been renting for the past couple of years in anticipation of lower prices. But he now yearns to get his family into their own home, even though prices could fall further. Mr. Olsen says he has agreed to pay $505,000 for a four-bedroom home that he thinks might have sold for $700,000 two years ago.
The Realtors also cut their forecast of sales of previously occupied homes in 2007 to 6.34 million from the 6.42 million projected a month earlier and 6.44 million two months before. In 2006, home sales totaled 6.48 million.
Meanwhile, the Mortgage Bankers Association suggested that the media's intense focus on the housing crunch, and shoot-from-the-hip responses from legislators and regulators, threatened to make the situation worse. In an email Tuesday, the association told its members that it has allocated an extra $5 million to combat "a torrent of unfair press and counterproductive policy responses" sparked by the turmoil in the subprime market, where dozens of lenders have been forced to close down or seek bankruptcy protection.
"Misleading information, often reinforced by vivid and frightening anecdotes, is raising the very real possibility of overzealous regulatory and legislative responses," the association wrote.
The $5 million budget for extra advertising, research and lobbying is equivalent to about 10% of the trade group's annual budget. The association said it is trying "to shift the media focus away from the 'foreclosure crisis' to the potential for a 'credit crunch' that could result from over-legislation and over-regulation."
Howard Glaser, a Washington-based industry consultant and former lobbyist for the MBA, says the association's planned campaign suggests that "they're not in touch with the reality of what's happening in the marketplace." Mr. Glaser, who last year helped to set up an association for midsize mortgage banks, the National Alliance of Independent Mortgage Bankers, says the MBA should talk about solutions rather than attacking critics. "Blaming the press for the troubles in the mortgage industry is a nonstarter," he says.
Doug Duncan, the MBA's chief economist, says the group isn't blaming the media.
Email your comments to rjeditor@dowjones.com.
-- April 12, 2007
