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Though deteriorating home price expectations among consumers could cause some potential homebuyers to remain on the sidelines this spring, leading indicators suggest that home sales will manage to eke out a slight rise from last year’s record lows.

Home Sales Seen Eking Out an Increase

Though deteriorating home price expectations among consumers could cause some potential homebuyers to remain on the sidelines this spring, leading indicators suggest that home sales will manage to eke out a slight rise from last year’s record lows.

As a result, Fannie Mae’s Economic Analysis Group is maintaining its forecast of a 6 percent increase in existing home sales this year but it lowered predictions for new home sales and housing starts, which now are expected to rise by about 4 percent this year.

‘While fundamentals do not suggest a robust spring season in housing activity, the odds of another outsized drop in activity have declined,” said the Fannie Mae economists in their April Economics and Mortgage Market Analysis report.

The good news is a 6 percent purchase in mortgage applications rose in March, following declines in January and February. Purchase applications continued to rise in early April, boosted by applications for government loans as some borrowers attempted to get mortgages before a scheduled increase in FHA insurance premiums later this month. Additionally, cash sales of distress sales account for about a third of all sales currently.

The bad news is that inventories are high, demand is dismal, distress sales are still a third of the market and the factors that traditionally stimulate sales aren’t working very well.

“Record high affordability has not stimulated housing demand as much as it did in the past. The job market is healing, but a significant number of people remain unemployed. While there are signs that household formation has rebounded with an improving labor market, new households that are being formed are more likely to be renters than owners. In addition, lending standards for mortgages have remained tight relative to non-mortgage consumer loans,” said the Fannie Mae report.

The report emphasized how the fragility of the housing economy. Inventory rose to a 8.9 months supply in February, the highest reading since August 2010. While the months’ supply has improved substantially from a record high of more than 12 months at the start of 2009, it remains much higher than its long-term average of about six months. Market expectations of home price performance have deteriorated somewhat over the past several months, and the Fannie Mae economists maintained their forecast that existing home prices will rise but still finish the second quarter 6.4 percent below last year’s level, when prices were enjoying the tax credit boomlet.

“While home prices at the national level are likely to decline further before stabilizing later this year, price trends will vary by region and prices are likely to have troughed in some local markets. One upside for home prices is that rents are rising amid increasing rental demand, which has substantially absorbed the excess supply of vacant homes, as is evident in the plunge in the rental vacancy rate in the second half of 2010,” they said.

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