2012 housing outlook: A slow recovery

The real estate market is expected to stay sluggish for the first half of the year, but may finally improve by the end of 2012.

By TheStreet Staff Dec 9, 2011 12:44PM

the streetImage: Rear view of a mid adult couple holding hands looking at a house (© Stockbyte/Getty Images)By Lauren Bloom


2011 has been a long, difficult year, with the economy continuing to limp along, unemployment hovering around 9%, Occupy Wall Street protesters demonstrating in most major cities and Congress displaying an embarrassing inability to put partisan politics aside and address the nation's economic problems.


As the end of the year approaches, one can't help but hope for better news in the year ahead. Hope is not a strategy, however. To see whether 2012 will be any better, let's look at one key economic sector: the nation's housing market.


Trends in the housing market tend to provide good evidence of where the overall economy and consumer confidence are headed. People usually don't buy houses when they can't afford to do so, notwithstanding the housing bubble that culminated in the financial crisis of 2008.


Consumers who can't produce solid job histories and reasonable down payments won't be approved for mortgages. (Again, putting aside the insanity that generated the subprime mortgage debacle.) Consequently, an uptick in new housing construction or purchase of existing homes should suggest that the economy as a whole is improving.


It's also good news for retailers like Bed, Bath & Beyond (BBBY), Home Depot (HD), Lowe's (LOW), Target (TGT) and Wal-Mart (WMT) that cater to new homeowners.


A quick survey of the experts suggests, however, that the immediate future of the housing market is by no means clear, and it hasn't been for some time. In November 2008, just as the economy was collapsing, the Congressional Budget Office issued a report presenting three possible scenarios for new housing starts in 2009-2012.


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Based on three factors -- number of new households, trends in the overall economy and number of existing, unoccupied units -- the CBO predicted eventual growth in new-home starts. However, using the CBO's most pessimistic scenario, which most closely resembles what actually happened over the past three years, new housing starts aren't likely to increase until the second half of 2012.


The CBO's most pessimistic estimate appears to be borne out by more recent projections. For example, CNN recently surveyed 21 economists to develop a composite picture of when the economy is likely to recover. Though cautiously optimistic about GDP growth, those economists apparently agreed that housing and employment would remain slow for at least the first half of 2012. Separately, CNN has predicted that the median price of U.S. homes will drop 3.6% in the coming year, and won't start to improve until after July.

That's the bad news. The good news is that the housing market will improve in 2012, even if it does so later than investors and homeowners might have hoped. A review of the CBO's factors explains why. We know that the recession has hit young adults the hardest, with high unemployment rates and hefty student loans battering them from both sides. Twenty-somethings who have moved back in with their parents and put off marriages and new homes are bound to get restless eventually. When they do, the number of new households in the U.S. will once again start to climb.


Similarly, high unemployment rates and fear of losing money on underwater mortgages have kept many homeowners in their current residences, and millions of foreclosures have glutted the market with empty homes. As the unemployment rate slowly shrinks -- the U.S. reportedly added more than 650,000 new jobs in the past three months -- home sales are likely to rise. Foreclosed properties will still glut the market, but most of those homes will eventually find new owners.


The challenge, of course, is projecting any kind of rebound in the housing market when the economy is still so vulnerable to outside influences. Another eruption of the European debt crisis, for example, could quickly destroy the small gains of the past few months. For the time being, would-be real estate investors would probably be smart to focus on regional markets that are recovering more quickly, and to steer clear of higher-end luxury properties that may be more difficult to sell.


Developers might be wise to focus on building more modest homes than the McMansions that currently sprawl across too many American suburbs. And retailers who sell home goods should probably continue to emphasize home improvement and redecorating over furnishings for new homes for the next six months or so. Whether consumers plan to stay in their existing homes or refurbish them for sale, there will probably be a decent market for paint, blinds and carpet.


2011 has been tough, and it appears that the first half of 2012 may be, too. But by the end of next year the troubles in the housing market may become just a bad memory.


Dec 9, 2011 2:29PM
Do not worry about purchasing a house ,like going to college IT IS A WASTE OF YOUR TIME & MONEY
Dec 9, 2011 3:20PM
If you have $5000 put it in the saving, how much interest do think you will earn from the bank after 5 years?  But if that $5000, you purchase a foreclosure home right now in some distress areas, 5 years from now, you may earn double or triple the amount you put in. Many banks only require 3% down, many foreclosure homes are very cheap.  It is a long term investment and you will make some profit from it.
Dec 9, 2011 4:13PM
Housing will never get any better. First of all, homes are over priced and with the way the economy is, forget about it and this country because it's going right down the toilet.
Dec 9, 2011 5:56PM
I'm an RE broker in the NW. Our market has fared better than some-worse than others. I keep up on all the statistics as I plug along trying to make a living. The #1 problem I have run across that has hurt the housing industry (& my livelihood) is not the economy, joblessness, banks, or even the price of homes. The biggest problem I run across is negativity from well meaning friends & relatives (& bloggers). Buying a home is still the best investment going. Let me show you with simple math. I own an apartment complex, and your family of 4 are renting a 2 bedroom unit from me for $875mo. (crowded huh). There is a lovely bank owned property down the street with 3bedrooms, 2baths, 1450sq ft, with a family room on .25 acres. You qualify for an FHA loan with a rate of 4.25%. With the mandatory 3.5% down your payment is only $917mo including taxes & insurance - BUT WAIT! You also qualify for the local down payment assistance program which gives you $15,000 extra. Now your payment is only $810mo. (just for the record, I just worked this exact scenario with one of my renters). How can this be bad? They more than made the difference up with their tax deductions.
Dec 9, 2011 5:43PM
it will get much ,much worse...80%-90% of people who need homes will be unable to buy a home...i am predicting 2012 to be a year from hell. I do not count the civil war out.You have to be paid by someone or totally insane not to see that house market will totally collapse in USA.No jobs ,no perspectives ,no production and impotent corrupted government equals true disaster
Dec 9, 2011 2:25PM
no recovery for 5 years ,yes 5 years so live with it ,your home is only worth 25% of its appraised value  
Dec 9, 2011 4:42PM
This guy is spot on. New housing starts will begin a turnaround in 2012. In fact, for my business - residential land development - it is already started. The past 5 years have been the worst - employees and revenue down 80%. But a turnaround is starting - at least here in SE PA. Workload is increasing and appears to be gaining traction - in the middle of winter which is usually the pits for new work. I see lots of new cars - expensive ones driving around, so somebody has a decent job ( or at least decent credit ). We can't continue forever building 400K new homes a year when we need 1.2M - it will be slow ascent, but we have come off the bottom. 
Dec 9, 2011 5:12PM
A quote from the article:
Hope is not a strategy, however.
It's not?!  Well, tell that to the people who voted for Obama!  (LOL)

Dec 9, 2011 3:05PM
Somehow I seriously doubt this prediction.

2011 has been tough, and it appears that the first half of 2012 may be, too. But by the end of next year the troubles in the housing market may become just a bad memory.

Dec 9, 2011 2:00PM
How many times are they going to write ridiculous articles like this? Hey we get it, you support this administration and you would like us all to vote for him, ain't gonna happen! There are Millions of homes on inventory and many more to come, in my neighborhood in Florida, it seems like everyone I talk to either is losing or about to lose their house it is mind boggling! The ones that either paid too much, or borrowed against it, are just waiting, but will let them go, I know one person who got a restructured loan and still plans on letting it go, this article is stupid!
Dec 9, 2011 7:59PM
If our deficit isn't reduced, our whole nation is going to crumble.  Thank the Republican Party.
Dec 9, 2011 4:26PM
the recovery may not be imminent but the housing bubble is probably completely deflated.  I would expect home prices to probably fall below trend for a little while while foreclosures and high unemployment works itself out.  However, a purchase at this price is not a bad idea, prices will probably keep pace with inflation in the long run
Dec 9, 2011 3:04PM

My only question is this;  Lauren Bloom, exactly what drug of choice are you using?


Seriously, the housing market is bad and getting worse.  Yes, there are miniscule pockets of positive activity, the Washington DC Metro area for example.  But that is the exception rather than the rule. 


In the vast majority of locations, homes are still being foreclosed on as the people don't have jobs to go to.  And for those people who do have jobs, they're part time and with minimal to no benefits.  The first priority of these people is to put food on the table, and keep the utilities on.  Mortgage and credit card payments are secondary, tertiary or even discarded entirely.


I personally know an individual who lost his job in August, and obviously has not been able to find another job, yet anyway.  Yes, he made exceptional money, in the area of $200,000 a year, and is an older individual so his job prospects are limited at best.  Hell, there isn't even a Wal-Mart near where he lives to be a greeter!!  So, they've been making mortgage payments since August out of savings, and not one person has even called his listing agent.  I've suggested he keep his cash and worry about the future and where he will live, instead of throwing good money away in what I believe is a futile attempt at doing the right thing.  Ultimately, he WILL lose the house, and his credit will be ruined and he will have NO personal resources to use to try and rebuild if he continues to pay the mortgage.  So accept the fact that he needs to walk away and have a chance later rather than be homeless AND destitute.


It's a sad state of affairs in this country right now.  And when Europe implodes, it will be worse.

Dec 9, 2011 5:04PM
People here on this board saying the housing market has hit bottom are just spewing speculation.  While it may be true that the market has hit bottom in the miniscule number of growing areas to be found out there, the vast majority of the US is still in hot water big time with plenty of downside left to occur before the bottom has been reached.

With so many people out of work and no end in sight, and so many foreclosures on the market with more on the way, it's very unlikely that the bottom has been reached for most places in the US.  Even this overly optimistic article is forecasting a further drop of 3.6% in prices.  The real drop could easily be in the 4-6% range for 2012, and another big drop in 2013!
Dec 9, 2011 2:22PM

How does one purchase a house on a 15 or 30 year contract, if a job does not last 5 years?

How does one purchase a house on wages of $8 per hour?

How does one purchase a house when on food stamps and unemployment?

At least 60% of American fall into one of these 3 categories, so who is purchasing a house? 

9% unemployment rate, I do not count the temp Christmas jobs like government to reduce the rate.

18% under employed, 49% live below poverty lime, 33% of families still to go through foreclosures, $2.5 trillion is consumer debt (credit cards only).

New great news was Black Friday with an increase in credit card spending up by 9% over last year.  I can see all the credit card companies sent Old Ben a bottle of Old Jack for Christmas. The only jobs going is in repo's, foreclosures, and bankruptcy.

Dec 9, 2011 4:31PM
Have you ever heard, things go down and it will go up? I agreed it will take some time for the RE market to heal.  You're right many houses will be rotting away but just remember that people need  a place to live.  If  less house; rent will go up.  One more thing, if you rent, your money will go the landlord's pocket.  If you purchase your own home, you build up the equity.  One more thing interest earned from banks will be taxed but R.E you can claim deduction.  I purchased my fist home for 30K. I rent it out and have some income every month and I really love investment into real estate.
Dec 9, 2011 6:36PM
oh good lord.  There are more foreclosures on the way than foreclosures that have been foreclosed on in the last 4 years.  Unemployment is down more so because of people falling off the count rather than finding jobs.  Realtors like realest8lady think the continued slump is due to negativity?  Really?  And where do you think that negativity is coming from?  If you think this is a great time to buy then guess what?  You sound like every realtor alive.  The line is always the same.  The numbers you are studying I guarantee come from your management and NAR which want to make people think IT IS A GOOD TIME TO BUY.....not matter what.  Don't give us your math....you don't know math.  Ask the person you just did that deal for where they will be when the market goes down another 30%.  Ask them what their credit will look like if they decide to walk because they don't want to be upside down for the next 10 years.  Ask them if they will ever be able to buy again if they do make the decision to walk...or if they get foreclosed on due to not making their payments due to unemployment....this market is ugly for everyone but the super rich.  The only people who should be taking the risk of buying are the ones who can afford to lose it all and still have enough money to maintain their lifestyle (THE RICH).  But keep it up.  There is a sucker born everyday as realtors like yourself continue to prove.

Dec 9, 2011 4:41PM
This is just a rambling, fluff article with pointless speculations about what the future might hold.  In other words, they had to put some text on the Internet to fill in the gaps between the ads.

  I love this lofty pronouncement from the author:
The good news is that the housing market will improve in 2012, even if it does so later than investors and homeowners might have hoped. 
The author seems to possess a delusion that the future can be commanded to behave a certain way.  The author even italicized the word will!  I recall reading other rosy articles in 2009, 2010 and 2011, similar to this one, claiming that a recovery was just around the corner.  It's coming, folks!  It's coming!  It's right around the corner!  But, for many, no recovery was coming.  Instead there was only more misery ahead.  And some of those who still had jobs would soon lose them.

But there are some things that are for certain: By this time next year, the US debt will be over a trillion dollars higher and America will be one year closer to its inevitable bankruptcy.

2012 could just as easily be worse than 2011!  Flip a coin.

Dec 9, 2011 1:27PM
BS, two to three more years before we hit bottom, there's just to many home's in this mess
Dec 9, 2011 7:31PM
Honestly I am more concerned about the education of our youth. This housing issue is a response that will run its course. It has been reset. This is the new baseline. We have to assume it will never come back and move on. I really do feel the decline is over.
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