© Vladimir Voronin – Fotolia.com

Mark Zandi, chief economic analyst for Moody’s, ought to know better than most. Considered to be one of the nation’s leading economic authorities, he points to similarities between today’s “housing renaissance” and previous recoveries since World War II.

“A housing revival is key to any optimism about the broader economy and jobs,” explains Zandi to the Washington Post.

“Now that housing is finally getting its bearings, it will turn from an economic headwind into a tailwind and become a significant source of jobs. There will be more construction jobs, construction-related manufacturing jobs, transportation and distribution jobs, retailing jobs, financial services jobs and a range of service jobs from cable hookups to landscaping. A better housing market is the principal missing link to a better job market.”

That’s a pretty bold statement to make, even with the present signs of optimism all around us, but Zandi argues that driving this is the fact that owning a home hasn’t been so attractive in years, something that will tempt growing numbers of people to do what it takes to buy. While tight credit standards are holding some back (for now), those that can obtain are taking advantage of low housing prices and super-low interest rates. Zandi also points to another factor – increasing rents – that leads many to think that buying makes more sense from a financial perspective.

Things are looking better for real estate in 2012

The article made a number of predictions for housing over the next 12 months. One of the most important of these is that home prices are expected to stabilize at long last. Although Mark Zandi of Moody’s Analytics is predicting that home prices will drop by a further 3% to 5% nationwide, he also claimed that in around 12 months time things will finally stabilize, before we finally start seeing some gains in 2013.

Housing affordability is also expected to grow higher. Housing affordability is worked out according to the ratio of median home prices to median family incomes, and this is likely to remain at the current record levels we are seeing now. The article in Kiplinger notes that many homes across the US are “substantially undervalued”, and predicts that we could even see a mini-bubble in places, with some areas seeing prices rise by as much as 10% to 15% in a given year.

One factor that will help keep houses affordable is low mortgage rates, which are set to continue where they left off in 2011 – at record low levels. 30-year fixed rate mortgages have been hovering under 4% for quite a few weeks now, and Kiplinger predicts this will stay around the 4% to 5% mark throughout 2012.

We may also finally start to see some more sales. While we still have huge inventories flooding many local markets, the big slow-down in new homes has led to a gradual easing of surplus inventories, something that should lead to an increase in existing-home sales.

Foreclosures of course, remain one of the big problems that are blighting many markets, so what will happen with those? The number of foreclosures coming onto the market slowed down for a while as lenders had to go back and reprocess paperwork for thousands of homes, but the pace is starting to increase once more. According to the Kiplinger article, there are around 1.84 million homes which are delinquent by 90 days or more, while a further 2.17 million homes have already been foreclosed but are still waiting to go on the market, according to data provided by RealtyTrac. Still, it’s hoped that so long as lenders don’t flood the market with all those foreclosed homes at the same time, home prices shouldn’t be impacted by them.

All in all then, we can expect an improved year for real estate. Not a great year by any stretch of the imagination, but hopefully a year of transition as we move towards bigger and better things by the middle of the decade.

Image © Carsten Reisinger – Fotolia.com

Young adults feel forced to move back home © Maridav - Fotolia.com

Recent data from the latest U.S. Census showed that young male adults in particular were finding moving back home a more enticing prospect than struggling on their own two feet, with 19% of males between the ages of 25 and 34 living at home. This marks a 5% increase on the number who loved with their parents in 2005. Meanwhile, 10% of women in the same age bracket also live at home, an increase of 8% on 2005.

Moody’s Analytic’s Mark Zandi said that the figures were cutting into the formation of new households significantly, and points out that an estimated 150,000 less households are being formed each year than what is considered to be a healthy number for the economy.

Housing markets are feeling this decline in new household formation, and in some areas this is thought to contribute to the ever decreasing home values, according to a report in CNN Money. The report points out that even the rental market could be doing a lot better if only young adults would rent homes instead of moving back in with their parents.

Lawrence Yun, the chief economist of the NAR said that things would be much brighter overall if these young adults would move out and rent:

“If more young adults were in the market for rentals, rents would rise and higher rents can tip some households [of all ages] into buying homes.”

Grown up child moving back home also has wider implications, reports CNN Money. With children shacking up with mom and dad for longer, those parents are being prevented from downsizing – selling up their current homes and moving into newer retirement homes.

This is a big problem because right now, both the broader economy and housing markets are struggling to get into gear. With hiring losing steam and home values hitting new lows, many observers are predicting even more declines in home prices.

Economists are desperate for housing markets to pick up. Courtesy of Static Guim

“The economy might be able to improve a little without housing, but it certainly won’t be able to flourish and bring down unemployment levels significantly unless housing revives,” said Moody’s Analytics Mark Zandi.

Along with the mortgage giants Fannie Mae, the biggest brains at Moody’s Analytics are forecasting that home prices will drop even further, by another 5% by the end of 2011.

However, some economists think that a recovery is even further away than they think. Dean Baker of the Center for Economic Policy and Research is one of them, and Barry Ritholtz of Fusion IQ is another. They are both of the opinion that current home prices are as much as 12% overvalued.

New jobs will mean more homes, and even more jobs. Courtesy of Yasa

“Right about now, real estate is what we call a falling asset class,” said Ritholtz.

Throughout history, it has usually been the housing markets that lead the economy to recovery, through the surge in construction and the new jobs that brings, and also the high demand for products and services needed to make a happy new household.

“A broken housing market freezes the whole economy,” says Ritholtz.

Baker is also worried about what will happen. “Housing was so important to previous recoveries, but today it isn’t happening. I don’t really see any other way though,” he admitted.

Fannie Mae insists that more jobs need to be created before the recovery begins. Courtesy of Opposing Views

On the other side of the card, we have Doug Duncan, an economist with Fannie Mae. He is more concerned about the impact of housing on jobs, and vice versa.

“We’ve said all along, it’s vital we raise employment levels,” says Duncan. “Until employment grows, income won’t grow, and so housing markets won’t grow.”

Duncan is now looking forward to the monthly unemployment report from the government this Friday. He says that if the economy slows down again, he will have to yet again push back the date of an expected housing recovery to begin.