Home sales and prices could register a small increase in 2011, but there is a downside risk that foreclosures could overwhelm buyer demand, sending values down, according to a panel of economists from some of the nation's largest banks.
Moreover, a majority of these 10 economists thinks banks will ease their underwriting standards and make mortgage credit more available during the first-half of this year.
The consensus view of economists who serve on an American Bankers Association advisory committee is that sales of existing homes will rise 4.1% in 2011 after falling 5.6% in 2010.
Mortgage rates will steadily rise from 4.8% in the first quarter to 5.29% by yearend, according to group, which released its forecast on Friday.
Stuart Hoffman, chief economist at PNC Financial Services Group, noted that economic growth will pick up this year and companies will hire 2.1 million workers, nearly double the new jobs created last year.
But the group is split over the direction of home values. Several members are concerned "there could be a drop in house prices, perhaps, from this foreclosure issue and how that is resolved," said Hoffman. Overall, the consensus view is that housing will have a neutral effect on economic growth, he said.
Scott Anderson, senior economist at Wells Fargo & Co., is in the camp that house prices could decline by 5% this year. Anderson is worried about the shadow inventory and the fact that too many homeowners are behind on their mortgage payments and could end up in a foreclosure or short sale.
The National Association of Realtors estimates there is a 10-month supply of existing homes on the market, and Anderson is worried that the number could grow to 17 months. "I think we are a year to two away before we hit ultimate bottom in house values," Anderson said.
