Housing Outlook Brightens for 2013 and Beyond

Abstract

The housing market is on a recovery path. Home sales are gaining, with sales of existing homes running at their fastest pace since 2010; house prices are rising, and the months of supply of existing homes are falling; months of supply of new homes are stable at a low 4.5 months. Barring a slide back into recession, the housing recovery will pick up momentum, and the homeownership rate will stabilize. Low mortgage interest rates, pent-up demand for housing, and increasing confidence that the housing recovery is here to stay will offset weaker job growth. Investor demand will also help drive up home sales throughout early 2013. House prices will remain the laggard, dipping slightly before hitting a sustained and solid pace of appreciation in 2013. The housing recovery will be in full swing by late 2013, adding to overall expansion. The major downside risk for housing is that the broader economic expansion could be derailed, either by the full force of the fiscal cliff or an unraveling of the eurozone. Job growth is essential to housing’s health. The main upside risk in the near term centers on the foreclosure outlook. A slower-than-expected increase in disposition of distressed homes would support house prices in the near term but would also dampen price appreciation over the long term.