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Economists: 2012 Marks The End Of A Long Bottom

U.S. housing markets are likely to continue on a path of slow recovery after seeing a multiyear bottom, according to three real estate industry economists participating in a forum hosted by the National Association of Real Estate Editors said today.

Continuing uncertainties over negative equity (about a third of homeowners with mortgages owe more than their homes are worth, according to Zillow), fuzzy housing finance reform possibilities, lagging foreclosure processing and tight lending standards are potential obstacles to the slow-rising tide of the U.S. housing market, they said.

David Crowe, the chief economist and senior vice president of the National Association of Home Builders (NAHB); Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors (NAR); and Stan Humphries, chief economist at online real estate marketplace Zillow gave their insights at a panel discussion.

Despite the semi-bright outlook, recent years have been tough for the market. “Last year was the worst year on record for house sales, for 60 years of housing-sale info,” Crowe said.

NAHB is forecasting a 19 percent improvement in single-family housing starts this year over last, Crowe said, from 434,000 last year to a projected 516,000 this year.

There’s an increase in demand, despite frictions in the market, NAR’s Yun said. Appraisal issues are holding back 15 to 20 percent of home sales, he said, and strict mortgage underwriting standards are holding back another 15 to 20 percent of potential deals.

These issues are slowly being resolved. And that the percentage of distressed home sales is declining — from about a third in 2011 to a projected 25 percent in 2012 and 15 percent in 2013 — bodes well for the outlook for housing for the next couple of years, Yun said.

Yun said he “wouldn’t be surprised” to see a 60 to 70 percent increase in housing starts next year, or 10 percent home price appreciation, as the market responds to increasing demand. Both will not happen, he said, but one or the other could — if lawmakers manage to avoid a fiscal cliff as the U.S. once again approaches its debt ceiling.

If lawmakers can’t reach a compromise by Dec. 31, more than $1 trillion in automatic spending cuts are set to begin taking effect at the end of this year.

Zillow’s Humphries sees a recovery as well; he’s more optimistic than he’s been in a couple of years, he said. The recovery is one that starts on the micro level, ZIP code by ZIP code, he said.

“It’s almost like a bacteria attacking a bad virus,” Humphries said of the recovery occurring in metros; he showed ZIP code-level map views of recoveries in Phoenix, Miami and Detroit in 2011 as examples.

What’s more, the recovery won’t be L-shaped, Humphries said. It’s going to stair-step as homeowners with large negative equity begin to enter the market as housing prices go up, which will temporarily swell the supply and pause the recovery briefly.

However, Humphries says the rush of investment in the single-family rental market could be the next housing market bubble. As rental rates increase and homeownership looks more attractive with increasing supply, that now-hot sector of the market will cool.