National Assn. of Realtors - 3 Years Needed to Clear ‘Distressed’ Homes

Jed Smith is managing director of quantitative research for the National Association of Realtors. He says that short sales and bank-owned homes will account for around 35% of U.S. housing deals for the next three years. We asked him how he sees the outlook for housing …

Q: The housing recovery is on anything but warp speed. How much longer will this downturn go on?

...Prices have been a major disappointment in recent years. Part of the price weakness in existing home sales has been to the overall deleveraging in the economy, and part of the price situation has been driven by the significant number of distressed home sales (foreclosures and short sales) that have driven the markets. Approximately 35% of existing home sales are distressed, and while the number will fluctuate from month to month, we expect to continue to have a distressed property situation for the next three years

Q: What’s holding the housing market back?

As a result of the Great Recession we have issues of job creation and loan availability. We think that there is a significant level of pent-up demand given the overall growth in the number of households in the past 10 years, but pent-up demand can only be realized if there is a meaningful gain in jobs.

In addition, low interest rates are not particularly beneficial if financial institutions have unrealistically high credit standards due to excessive risk aversion. Finally, some additional recovery of consumer confidence, which will probably occur as people realize that the Great Recession is over, will help to facilitate the housing markets. We are already seeing modest improvements on a local basis in home sales and prices, and hopefully the recovery will gather steam.

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