BOSTON - The U.S. residential real estate market is caught in the worst correction in decades with few reasons to be optimistic as the economy worsens, according to a key housing report released Monday.
"Despite unprecedented federal efforts to jumpstart the economy and help homeowners keep up with their mortgage payments, home prices continued to fall and foreclosures continued to mount in most areas through the first quarter of 2009," according to the executive summary of the State of the Nation's Housing annual report released by Harvard University's Joint Center for Housing Studies.
"While new and existing home sales and single-family starts have shown some signs of stabilizing, ongoing job losses, house price deflation, and tighter mortgage credit are placing any recovery at risk," the report said.
A recent bump-up in mortgage rates and rising foreclosures and job losses are just a few of the challenges standing in the way of a lasting recovery, economists say.
"Although there are some signs of improvement or at least steadiness in new construction and sales, housing starts stand near 60-plus-year lows and any life in home sales is coming from distressed foreclosure sales, temporary first-time buyer tax credits, and low interest rates that moved higher in recent weeks," said Nicolas Retsinas, director of Harvard's Joint Center, in a press release.
"The best that can be said of the market is that house price corrections and steep cuts in housing production are creating the conditions that will lead to an eventual recovery," added Eric Belsky, executive director of the Joint Center.
"For now, markets remain under considerable stress," Belsky said.
The bleak study coincided with a separate report from the World Bank warning of more damage in the global economy.
This week, investors will be focusing on housing data and any commentary the Federal Reserve offers on the economy.
"On the economic front, new and existing home sales should show improvement but from very low levels," said David Kelly, chief market strategist at JPMorgan Funds. "The recent back-up in mortgage rates, although unwelcome, really should not be enough to prevent pent-up demand and still very good affordability from triggering a housing rebound."
Still, some Wall Street analysts covering the home-builder sector remain skeptical of talk of a sustained recovery.
"Overall, the California builders we met with echoed what we have been hearing throughout the U.S.: that there was clear momentum in sales in the spring, but concerns still remain around the sustainability of the improvement we have seen," said Barclays Capital analyst Megan McGrath in a note recapping a recent industry conference.
"The availability of credit, to both builders themselves and to buyers, continues to be challenging," McGrath wrote. "While it appears that banks are willing to do some construction-only loans to builders, land-related financing appears to be relatively non-existent."
Sales of existing single-family homes were down 30 percent last year from the 2005 level, while new-home sales showed a record-breaking plunge of more than 60 percent from 2005 to 2008, according to the Harvard report.
According to the Mortgage Bankers Association, at least 3.2 million homeowners entered foreclosure in 2007 and 2008, and an additional 600,000 entered foreclosure in the first quarter of 2009.
Despite these dismal figures, the Harvard report did see some long-term positives for the U.S. residential market. In particular, it cited demographic trends such as expected demand from immigrants and so-called echo boomers, or the children of baby boomers.
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