Home sales set to drop 2.3 percent this year: Reuters Poll

By Al Yoon

(Reuters) - A pick-up in home sales in the past six months will soon hit a wall as foreclosures are dragged out, creating a supply overhang that will push prices down 2.3 percent this year, a Reuters poll predicts.

Rising sales have offered hope for the housing market, which remains in a four-year slump despite multi-billion dollar federal programs and record low interest rates.

But economists now expect home prices will fall 2.3 percent in 2011, and then begin a slight recovery in 2012, according to the median forecast of the 26 economists who gave a price outlook in the Reuters poll.

A rise in "distressed" home sales at depressed prices has helped clear the path for a recovery. But economists doubt the bounce will last as the pace of foreclosures drags out.

"One of the big question marks that people are not paying enough attention to is not just the number of foreclosures, but the speed of foreclosures," said David Wyss, chief economist at Standard & Poor's in New York.

"The time it takes to do a foreclosure has doubled, and that means you are dribbling out these foreclosures over a much longer period of time," he added. "You have to clear that overhang of homes."

By the fourth quarter of 2011, the pace of existing home sales will only edge up to a 5.48 million annualized rate from the 5.36 million pace in January, according to the median forecast of 21 economists who gave an outlook for sales in the Reuters poll.

The rate has recovered from 3.86 million units in July last year, following a slump that was caused by the expiry in April of federal home buyer tax credit incentives.

DISTRESSED SALES RISE

Most economists expect home prices to fall further in 2011, unsettling potential buyers and prompting lenders to demand more equity for their loans.

The total price drop from the peak of the housing market in 2006 will be 35 percent, they said.

Purchases of distressed homes from troubled borrowers, or those in or near foreclosure, are seen as an important way to absorb the almost four years' worth of inventory that may hit the market, economists said.

Distressed sales hit a one-year high of 37 percent of all existing-home sales in January.

Banks have slowed the foreclosure process as they try to implement the federal government's mortgage modification programs. More recently, failures in banks' mortgage servicing and foreclosure processes have created new snags in the system.

Foreclosures will at least begin to subside in 2011, according to 18 who gave an outlook in the Reuters poll.

"Price expectations are probably more important than foreclosures at this time," said Donald Ratajczak, Morgan Keegan's Atlanta-based consulting economist.

He noted that prices are rising in San Diego, where foreclosures make up a big portion of sales, and falling in Atlanta, where foreclosures are below average. The difference, he said, is that San Diego buyers see foreclosures as an opportunity, and Atlanta buyers see them as a problem.

Interest rates are not likely to harm housing in 2011, as many economists have feared, the Reuters poll showed.

The average 30-year fixed U.S. mortgage rate will probably settle at 5.1 percent this year, the median poll forecast showed, up marginally from a rate of 4.84 percent in the latest week. That is up from 4.19 percent in mid-October, the lowest since 1951, according to Freddie Mac.

(Polling by Bangalore Polling Unit, editing by Leslie Adler and Susan Fenton)

URL to original article: http://www.reuters.com/article/2011/03/02/us-poll-us-home-sales-idUSTRE7214XS20110302?pageNumber=1

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