Although the housing market has been enjoying a minor recovery, this recovery has relied heavily upon cuts in mortgage loan interest rates coupled with the tax credit made available to first-time homebuyers. As such, some industry experts are concerned about the future of the housing market once this tax incentive draws to an end in June and the $1.4 trillion mortgage-related Federal debt purchases program comes to an end.
Although analysts do believe there will be an increase in purchases in spring as buyers rush to beat the June tax credit deadline, they also anticipate experiencing a slowdown in activity during the second half of the year. As the economic recovery trickles down to the labor market, however, many experts anticipate seeing another pick up in sales.
“It (recovery) will continue. What I am counting on to bolster demand in the second half of the this year is continuing economic expansion,” commented David Crowe, who is the chief economist at the National Association of Home Builders in Washington. “Sales will be driven by pent up demand along with low house prices and a return to positive employment growth.”
Many economists predict that the labor market will start to enjoy some growth as early as March after hitting a 26-year high at 10.1% in October. Although interest rates are expected to go up, economists believe home loans will continue to remain affordable.
“Home prices are now down almost 30 percent from when they peaked in 2006, so even a 50 or 100 basis points move in the mortgage rates is not going to do substantial damage to the housing recovery,” said Tortson Slok, who is an economist at Deutsche Bank in New York.
According to analysts at Freddie Mac, home mortgage interest rates will need to rise to 6% before the rates will discourage potential buyers. Further, some analysts believe the Feds will take action once again if the rates start to get too high.
“They can’t allow the housing market to falter from here,” said Josh Levin, who is a homebuilder analyst at Citigroup in New York. “If you are under 6.0 percent, affordability is still your friend. Sales won’t be affected.”
Despite the fact that the economy is moving in the right direction in many ways, foreclosures may remain a problem.
“There are currently about 5.5 million mortgages either seriously delinquent or in some stage of foreclosure,” said Michele Meyer, who is an economist at Barclays Capital in New York.
Regardless, many economists believe that pent up demand and an improving job market will outweigh the additional inventory.
Keith Munsell 
A housing recovery is still a long ways off – and when I say “recovery” I mean when house prices stop falling (not go back to 2006-2008 levels as others mean – that will take 10 years).
Why is the housing recovery so far off?
-Inventory is still too high (months to clear is still double what’s considered a “healthy” market)
-Rent to price ratio is still way above historical highs. Until prices come down or rents come up (or more liklely some of both) it will still be over valued
-Interest rates are artificially low and will continue to trend up over time. A 7-8% interest rate is well within historical norms and many of us would not be able to afford the home that we’re in at price points like this.
-The home buyers credit encouraged buyers to come forward. Those buyers are no longer on the market AND cannot sell for a period of time or they’ll lose the credit.
-Home ownership is still close to an all time high. There aren’t many more people who would normally be home buyers that are sitting in the sidelines
We’re still looking at a “soft landing” in the real estate market that will mean another 10% reduction in prices or, at worst, flat prices for the next 3-4 years. Prices have to get back to within range of historical norms for their to be “value”.
Until that happens, we haven’t seen bottom.