Economists See Long Road to Housing Recovery

The second half of this year will bring continued challenges for the housing market, according to two Wells Fargo Securities economists, who expect higher mortgage rates and new home price declines. "The housing market will not return to a position of strength until late next year or in 2012," said Mark Vitner and Adam York. In their April "Housing Chartbook," they note that the housing recovery so far has been based on tax incentives, artificially low mortgage rates and "unprecedented" assistance for struggling homeowners. The Federal Reserve stopped buying agency MBS at the end of March and the homebuyer tax credit is set to expire late in the Spring. "We have significant concerns about the sustainability of the housing recovery once the stimulus is removed from the marketplace," the economists say, adding that an excess supply of 2 million unsold homes will continue to exert downward pressure on prices. "We estimate housing prices could fall an additional 6% to 8% from their current levels before they ultimately bottom out," York told National Mortgage News. But he noted that most of the drop in prices will come from sales of higher-end homes.