Optimistic 2010 Home Sales Forecasts

Since the NAR recently trumpeted their 2010 forecast at their convention I decided to look at the national home sales forecasts for the NAR, Fannie Mae and Freddie Mac.

The NAR sees existing home sales (EHS) rising 13.6% from 5.011 million sales to 5.694 million sales. From my observation when these associations must face their membership at the yearly convention it is when they have the most optimistic number for sales. That is an awfully bold prediction, maybe it is because they think prices will fall thus spurring sales. But no the NAR predicts median prices will increase 3.6%. Hmmm, well Home sales up.. prices up.. maybe they think mortgage rates will drop in 2010. Again, no, they are predicting an increase from 5.2% to 5.7%. Maybe they think unemployment will drop? Again, no, from 9.3% to 9.8%. Usually you can squint really hard and figure out where people are coming from and how they arrive at their numbers but I am having a hard time figuring out the immaculate housing recovery the NAR is predicting.

For Fannie Mae they are predicting EHS rising 10.1% from 4,959 to 5,459. At least they think prices will drop from 173.8 to 170.8. Their belief is mortgage rates will rise from 5.07% to 5.42%. Fannie mae is also predicting mortgage origination volume will be down 30% with refinances dropping by half and purchases increasing.

For Freddie Mac they are predicting Total home sales rising 13.4% from 4.85 million to 5.50 million. Freddie Mac is predicting prices dropping 3% according to the Case/Shiller Index. Interestingly Freddie Mac is predicting basically flat originations YoY and interest rates rising from 5.1% to 5.6%.

To me this seems like wild-eyed optimism. The restraints on supply in the price ranges that are selling means we will have fewer sales not more. If interest rates are going up, a safe bet because of the Fed announcing stopping MBS purchases, then affordability goes down and again sales will drop. The tax credit is expiring but has been less and less effective motivating sales and I think the abundance of REO inventory and tremendous interest rate drop last year had more to do homes selling than the tax credit. Fannie Mae's forecast for refi originations dropping 50% makes the most sense and I think we will see a wave of additional mortgage officer layoffs in 2010. Refinances are spurred by rates dropping below what the mortgagor currently has.. rising rates isn't conducive for a refi wave.

Here are the headwinds for the coming year:

1. The Fed ending MBS purchases and interest rates rising.
2. The Tax Credit ending
3. Unemployment increasing.
4. Political pressure choking off foreclosures, i.e. motivated supply

Here is what I see could help the market:

1. The other half of last years stimulus bill taking effect.
2. A new stimulus bill.
3. The plan to increase short sales should be announced soon.

The stimulus bills might just remove supply from the market resulting in even fewer sales. A job temporarily kept or received because of a government contract probably won't instill confidence and spur home sales.

It looks like the NAR and their kin are betting on a V-shaped housing recovery. I think they should be praying that home sales can maintain this level that was only this good because of tremendous stimulus combined with motivated supply. It is extremely difficult for me to envision any scenario which makes home sales increase YoY and none of those scenarios involve home prices going up and interest rates rising.

C.A.R .2010 Forecast

Today the C.A.R. released their 2010 Forecast today, I have added last years forecast and some of the changes made as a way of measuring how well they did throughout this last year. It was painfully obvious that last years forecast was outdated the instant they gave it. And I said so at the time. Looking at the sales trend before the forecast for the previous months they were all showing things much different than the presentation the CAR gave. The forecast is the highlight of the CAR Expo every year and it is always sold out from what I hear.

My favorite quotes of mine from last year regarding the forecast:
"So why, when faced by the one crowd whose job it is to educate and prepare for the upcoming season do they sugar coat the price decline issue? It is really unfortunate that they can't bring themselves to be realistic as good information will be one of the things that will help this situation normalize."

And:
"I think the CAR doesn't have any data models or anything sophisticated they just forecast sales and prices +/- 5% and then adjust throughout the year based on incoming data."

I'll have to think some more on the forecast and go through the presentation a bit more to formulate an opinion. But my guess is they are underestimating the median price improvement (due to the mix shift that I believe will happen in 2010) and overestimating sales. I am reminded of some wise words I once heard, "If your numbers are off more than 10%, you are just guessing". The CAR is just guessing and people give their opinion way too much credit.


New Forecast for 2010:
June 2009 Forecast:


April 2009 Forecast:


Updated January 2009 Forecast..

January 2009 Forecast:

December 2008 Forecast:

October 2008 Forecast:

Some charts from the latest CAR forecast

Here is the California Association REALTORS® forecast as of 6/12/09 (basically unchanged):

Here are the number of buyers with zero downpayment:

Here is the stratification of unsold inventory:

CAR revises forecast

Anyone want to take the other side of the wager that sales won't reach the 550,000 level indicated by the CAR for 2009?

Update April 2009 Forecast:


Updated January 2009 Forecast..

January 2009 Forecast:

December 2008 Forecast:

October 2008 Forecast:

Ventura County Economic Forecasts.

Both the Los Angeles Economic Development Corporation and the UCSB Economic Forecast project have publicly available forecasts for Ventura County. The LAEDC forecast can be found here starting on page 39. The UCSB has their powerpoint presentations from both Kirk Lesh (here) and Bill Watkins (here). The videos of their presentations of their slides can be found here.

Obviously we are in for some difficult times, it is always interesting to hear different takes as people try to quantify the issues at hand. If you only have limited time I would watch the Watkins video posted above.

CAR revises forecast again

Updated January 2009 Forecast..

January 2009 Forecast:

December 2008 Forecast:

October 2008 Forecast:

Less than 2 weeks ago I posted the updated CAR forecast.. they have decided to revise the median price forecast downward again...

Updated 2009 CAR forecast.

January 2009 Forecast:

December 2008 Forecast:

October 2008 Forecast:

Back in November 2008, shortly after the California Association of REALTORS® (CAR) gave its forecast for sale for 2009 I asked if it was already obsolete. Merely looking at the monthly home sales reports the CAR gave clearly indicated that the forecast wasn't matching, and in the case for median price, was in fact exceeding the recent past data. This wasn't data modeling or doing anything fancy just a simple comparison of A vs B and seeing something didn't add up. It is clear that when faced with a large crowd of their peers the CAR simply couldn't break the news that 2009 is just going to be another bad year for prices. If you look at the above graphics, the October and December forecasts are nearly identical (minor change in interest rates) but all of the sudden the January 2009 forecast reduces the median price by $58,000 (a 16.2% reduction from original forecast) and increase in sales for the year by 35,000 (7.8% increase from original forecast). If they just made this forecast as their original forecast at a time when the most eyes and ears were on them they might have actually prepared their members for the year ahead. But instead they release it later after it was clear the original forecast bore no semblance to the reality of 4 months ago much less the future.

CAR Forecast for 2009 already obsolete?

This is the forecast for 2009 by the California Association of Realtors given out at the CAR Expo on October 15th. Note the median price is forecast to be down 6% to $358,000 for 2009. August's median price was reported to be $350,890 and September's median price was reported to be $316,480. Now it is absolutely the case that mix shift makes up a huge part for such declines but at no point do they justify how the mix shift will change or depreciation will stop. In fact their latest Economic Trends article has the following sentence, "The September median price was last in the low $300,000 range in early 2002, and there is no sign that home prices will soon flatten out". So why, when faced by the one crowd whose job it is to educate and prepare for the upcoming season do they sugar coat the price decline issue? It is really unfortunate that they can't bring themselves to be realistic as good information will be one of the things that will help this situation normalize.

CAR 2009 Forecast

As far as I know the 2009 forecast wasn't supposed to be released until October. But here is a sneak peak released a bit earlier.

I think the CAR doesn't have any data models or anything sophisticated they just forecast sales and prices +/- 5% and then adjust throughout the year based on incoming data.