Economists' Predictions on Housing Market Coming True

May 28, 2009

Buyers, Sellers Can Find Reason to Feel Reassured

Media contact: Lori Fogleman, director of media communications, (254) 710-6275

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No one is saying if they used a crystal ball - but predictions made by economists a year ago appear to be squarely on target today, and that indicates good news for American homebuyers and sellers.

Findings from a survey of economists in July 2008 on issues related to the hard-hit U.S. housing market are on the verge of being realized, according to the Keller Center at Baylor University's Hankamer School of Business.

The center surveyed 840 members of the American Economic Association. Their predictions today provide some assurance to potential buyers that the housing market should stabilize during 2009, with price declines ending, sales slowly rebounding and mortgage interest rates staying relatively level in both the near- and longer-terms.

Despite a dramatic decline in home prices during the past two years, nearly 75 percent of the economists surveyed expect the market to bottom out no later than end of this year. Just under half of the respondents expect the bottom to be reached by the end of the second quarter of 2009.

"When the research was conducted, the housing market was already in crisis, with subprime mortgages and declining home prices, but there were many events that the economists surveyed could not have foreseen, such as the global financial crisis, bank failures and the outcome of the presidential election," said Laura Indergard, MBA, associate director of the Keller Center at Baylor.

"Despite that, we are now hearing reports that single-family segment of the housing market is exhibiting signs of stabilizing and here we are in the middle of the second quarter of 2009. The predictions of the majority of the economists would appear to be on target and I think that should be reassuring to the potential American homebuyer," Indergard said.

The surveyed economists were generally in agreement that housing prices would increase over the next five years, though they anticipate modest gains that are unlikely to keep up with overall inflation.

The reluctance of buyers to get into the market may be making the housing slump worse. More than half of the economists believe many people are waiting for the housing market to bottom out before buying a home. Asked for their opinions on why people should buy homes, the economists' overwhelming response (94 percent) was that people should buy homes because they are ready to do so from a financial and life-cycle perspective. While financial gain on the home may be an added benefit to home ownership, the economists on the whole do not think investment value should be the main motive in buying a home.

Two-thirds of the economists believe that overall sales volume will slowly rebound over the next two years, and only a small minority (7 percent) thought declines in the number of home sales were likely in the next two years.

The economists also expected little change in mortgage interest rates. Throughout 2009, approximately three-fourths of the economists thought that interest rates would be between 6 and 7 percent. Over the next 10 years, nearly 6 of 10 economists expected mortgage interest rates to hover between 6 and 7 percent.

The Keller Center at Baylor University focuses its studies on the factors that influence individual home buyers in their decisions, as well as marketing and management issues that are important to real estate agencies and small businesses. For more information on this survey and other Keller Center research, contact Laura Indergard at (254) 710-4243 or Laura_Indergard@baylor.edu or go to www.baylor.edu/kellercenter.

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