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 2:04PM

Housing will not recover until it's affortable to the average income American without massive government intervention.  And that will only happen after the untold millions of shadow inventory is gone.  Independent people (those who don't get paid to write unrealistically optimistic articles) figure we are years from all this happening. 



Dec 9, 2011 1:25PM

slightly premature since a new wave of foreclosures are about to hit the market?


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 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 1:29PM
Surely you jest.  The market will continue to be soft for years to come - most properties have been devalued (mine @ - $70,000), so why would I sell to become ensconced in a bright shiny new mortgage?  Does not make economic sense.  In addition, true or not, the dreaded "shadow foreclosures" will hit the markets next.  Save your money the ride is far from over.
Dec 9, 2011 1:48PM
this market isn't going anywhere until employment stablizes and jobs that generate an above average income return. i don't see either happening anytime soon.
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 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 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 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 4:01PM
The job I had before this depression paid $22.00 per hr. after being laid off and finding a new job in the same industry I am making &12.00 per hr. This is one example why I and many more cannot even think about a new home!!!
Dec 9, 2011 3:40PM

Poor-Man, I agree with you 100%, your friend will lose everything - he should stop paying out of his saving for a house that he will never be able to make money on (and you stated he was an elderly man... not old, but not young).


My friend lost all his properties in Florida, he owned nothing to the bank, it was his house he was living in that he owed money, and he was self employed, a day trader... a one time millionaire... he took his life... yes I know this is not the answer, but walk in someone else's shoes, he told me his properties lost 80%, he was trying so hard to sell to get money in his pocket.. he was unable to sell, he lost everything... he was only 54 years old... the market crashed, his real estate was worthless.




As far as our government, I hate them - forget the Illegal's, the housing bubble, the gas and food prices, no jobs... all I am going to say:


THIS PAST SUMMER OUR GOVERNMENT COULD NOT COME UP WITH A BUDGET... SO YOU KNOW WHAT THEY DID, THEY WENT ON VACATION!  NEED I SAY MORE MORE!  %%^^&#*#*#*# THEM.. I don't trust those money hungry, out of the loop greedy A - holes!



Dec 9, 2011 4:36PM

this is all bulls*t . the new construction housing market wo,t come back untill all the foreclosoure mess is finished. there's 4 years of inventory in that pipeline , that puts us at 2015 before all that mess is cleared , then it will take people time to adjust to real market prices, right now almost all production builders are just rolling inventory ( ie. no profit ). then when the demand is back and lending catches up along with personal wages and wealth to be able to buy new built housing there will be massive inflation in raw material prices , most dimensional and sheetgoods lumber suppliers closed 1/2 their plants for good , which will suppress demand for at least another 2 years . total out come that puts us around 2017-2018 before new home builders see real  profitability in the industry . builders are eternal optimists and i've been a builder for 30 years and this what i see as reality. you judge for yourself .

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 3:47PM
This guy is wishing on a star.  Housing will not return for years to come.  Millions of homes foreclosed and rotting away because the banks won't take care of them.  Millions more underwater.  The consensus of those that are looking has really been diminished with owning.  But i guess if the banks go back to giving anyone a loan that walks in and can sign on the dotted line, i guess that would be different. 
Dec 9, 2011 4:44PM
Your title is misleading.  It was also just reported that this past year, the average house in the United States lost $22,000 in value.  Dont try to sugar coat what is going on in the US.
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 4:42PM
I am an active investor. i have found to be even close to being successful one has to maintain good knowledge of the market. I have gleaned from various scources that 2014 will see the end of the housing crunch. Hope it's sooner but maybe not.
Dec 9, 2011 7:31PM

Your facts are fiction. There is a huge wave of houses already foreclosed on waiting to go on the market. There are another huge wave of adjustable rate mortgages that have adjusted down, for now........ Our government has done very little to correct the problem. Most people have been on their own to solve this problem and it will take a long time to correct itself.

The big push to make the economy look better is politically motivated for those looking forward to remaining in office after the next election.

Dec 9, 2011 2:29PM
Do not worry about purchasing a house ,like going to college IT IS A WASTE OF YOUR TIME & MONEY
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