San Diego Housing Bubble News and Analysis

SAN DIEGO (MarketWatch) -- Home sales are expected to rise about 15% next year, as buyers take advantage of a home-buyer tax credit and housing prices stabilize, the National Association of Realtors' chief economist predicted on Friday at the group's annual conference in San Diego.

The industry group is forecasting 5.69 million existing home sales in 2010, up from an anticipated 5.01 million this year. About 549,000 new-home sales are projected for next year, up from an estimated 397,000 this year, he said.

"The fear factor will no longer be at play in 2010," said Lawrence Yun, NAR chief economist. Many consumers feared that home prices would continue to fall and decided to postpone their purchases until the values were finished declining, he said. But next year, those who remained on the sidelines will believe prices have hit bottom.

And they'll take action -- if they have a job, he said.

Yun said unemployment could remain about 10% during 2010, but it "will not deter those people with jobs from making home-purchase decisions."

Realtors are celebrating the extended and expanded home buyer tax credit at their annual conference. The industry group, along with others, lobbied for passage of the measure.

With the credit, first-time buyers can qualify for up to $8,000; those who own a home may qualify for a credit of up to $6,500 for the purchase of a new principal residence. Realtors are optimistic that the "free money" being offered to home buyers will help generate sales during some of the softest months of the year: November, December and January, Yun said.

"By putting cash in the hands of financially healthy home buyers, the credit will continue to help draw down inventory and stabilize home prices to encourage a strong and sustainable housing recovery," said NAR President Charles McMillan in a news release.

To qualify for the credit, buyers have to have a binding contract on a property in place by April 30, and need to close on the sale by June 30. Yun said there is a strong sentiment in Washington that the credit won't be extended again. He also thinks that it might not be needed.

"By that time, the housing market will be back on track... and I believe that will be the situation as the tax credit comes to an end in the middle of next year," Yun said. By that time, he expects home values to be showing consistent -- and sustainable -- increases.

Barring any major unforeseen events impacting the economy, home prices are expected to rise between 3% and 5% next year -- although appreciation will vary widely between local markets, he said. See why some economists think housing could be in for a double-dip recession in 2010.

Yun is also taking into account the high level of foreclosures that will continue to pile up into next year. Yun expects foreclosures to peak in the first or second quarter, but said there is demand in the market to absorb the inventory quickly. Read more on the avalanche of mortgage modifications that need to be dealt with.

First-time buyers made up a record 47% share of home sales over the past year, up from 41% in 2008, according to NAR's Profile of Home Buyers and Sellers, scheduled to be released during the conference. In 2006, as home prices were near their peaks in many markets, first-time buyers made up 36% of sales.

The rise in people buying a first home is being attributed largely to the tax credit; Yun estimates that there were 2.3 million to 2.4 million first-time buyers this year.

First-time buyers also took advantage of lower home prices this year, as well as low mortgage rates. NAR is forecasting that the 30-year fixed-rate mortgage will average 5.3% in the fourth quarter, and will rise gradually to 5.8% by the end of next year.

Yun said that the jumbo mortgage market is showing signs of improving, which will help sales of more expensive homes; jumbo loans are those that exceed the conforming loan limit and thus are too large to be bought by Freddie Mac or Fannie Mae.

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