Real Estate Crystal Ball

By Amy Winter

March 19, 2010 4 min read

Although the housing market has suffered from a downturn with an increase in foreclosures, there is hope for a recovery in the next several years. Robert Denk, assistant vice president for forecasting and analysis at the National Association of Home Builders, says, "2009 will go into the books as the bottom of the worst housing downturn since consistent records began being kept in 1959." Denk doesn't see the recovery happening at a fast pace; it will be more of a "multiyear process."

Paul Bishop, the vice president of research for the National Association of Realtors, says the housing market could return to normal in the next five to eight years. However, with the recent decrease in home prices, it is difficult to distinguish the new normal when it comes to home sales. Mike Colpitts, editor of Housing Predictor, forecasts the housing markets across the country on a daily basis. He believes it will take many years for the housing bubble to recover from reduced prices.

When it comes to baby boomers, some prefer to head to the Sun Belt for retirement housing options, but the majority of them want to live near family members and health care facilities.

"Retirees tend to stay put or relocate to where they have children or other relatives," Denk says. "Some retirees certainly head south, but it is not the majority. This means housing demand from boomers will be reasonably geographically distributed rather than overwhelmingly Sun Belt-bound."

Second homes still will be part of the baby boomer generation, but it could be a narrower section of buyers. Boomers who aren't financially secure may have to wait a year or two to move into retirement communities or buy second homes, according to Bishop. If boomers have lost equity in their homes and money in stocks, they most likely will need to hold on to their primary residences. Colpitts says the housing market has made it more difficult for boomers to sell their homes; therefore, retirement communities are moving at a slower growth pace.

The first-time homebuyer tax credit is helping the housing market move forward. James Kimmons, a real estate writer for About.com, describes the tax credit as "a Band-Aid that has increased purchases, helping to slow the growth of inventory from foreclosures." The tax credit provides more buyers, which can aid the baby boomers who are trying to sell their homes. The tax credit immediately enabled the sale of more homes, and an increase in home sales leads to more healthy activity in the market, according to Bishop. Intended to re-establish normal housing demand, the tax credit encouraged about 200,000 sales in 2009 and is estimated to bring another 180,000 sales in 2010, according to the National Association of Home Builders.

More demand in the housing market will be coming from the echo boomers, the children of the baby boomers. Kimmons says these buyers most likely will be cautious and hesitant to believe the "don't worry, it will go up in value" idea.

Factors that could affect the future housing market include: mortgage rates, the long-term health of the economy, tax rates and lending markets.

"Excess inventory in some markets, exacerbated by foreclosures and fear of further declines in house prices, has undermined homebuyer confidence and represents significant obstacles to recovery," Denk says. "On the other hand, historically low interest rates, the stabilization of house prices and the temporary tax credit are features of the current landscape that should support recovery.

"How these opposing forces play out will determine the pace of return to more normal long-term housing demand conditions."

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