In the face of an intractable credit crisis and a recession that could be the deepest since World War II, economists are expecting another downcast year for housing in 2009. Mission Residential Chief Economist Richard Moody, for example, projects home prices to continue along their downward slope for the entire year before hitting bottom in early 2010. But while there's no shortage of gloomy data—rising unemployment, higher mortgage delinquencies, increasing foreclosures—glass half-fullers do have a number of hopes to cling to. And while these more optimistic factors might not be enough to spring housing back to life in 2009, they could—with a few lucky breaks—prevent the market from declining as sharply as it otherwise might.
Here are the five best reasons to be hopeful about housing in 2009:
1. Cheap mortgage rates: With inflationary pressures easing and economic concerns mounting, shell-shocked investors are seeking the protection of government securities, such as 10-year treasury notes, driving down yields. The lower yields, coupled with the Fed's recently announced plans to buy up debt and mortgage-backed securities from Fannie Mae and Freddie Mac have dragged mortgage rates to multi-year lows. Thirty-year, fixed mortgage rates hit an average of 5.47 percent last week, the lowest they've been since 2004, according to Freddie Mac.
To be sure, not everyone will be able to take advantage of these attractive rates: Tougher lending standards will prevent many would-be buyers from getting into the market, while homeowners whose houses are now worth less than what they owe on their mortgage won't be able to refinance. Still, the rates present a welcome incentive for qualified borrowers to step up to the plate. "Lower mortgage rates mean more people with those credentials will be able to qualify," says Patrick Newport, a U.S. economist at IHS Global Insight. While that might not make a dramatic impact on the market, it could be enough to keep home sales from declining as much as they otherwise would, Newport says.
2. Lower prices: Home prices at the national level have already fallen 21 percent from their 2006 peaks. And in certain bubble markets, the crash has been even steeper—prices have fallen more than 30 percent in Phoenix and Las Vegas over the past year alone. Although that's a big blow to homeowners—the housing bust is expected to wipe out more than$2 trillion in home values in 2008—lower prices do help stimulate buyer demand, which is badly needed to mop up the excess housing inventory. And while home prices are expected to drop further in 2009, values in certain markets are already at levels low enough to tempt bargain hunters. "Falling home prices aren't part of the problem, they are part of the solution," says Mike Larson, a real estate analyst at Weiss Research.
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