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Return of the consumer.

Consumers are becoming more optimistic about purchasing a home, according to a report released at the end of 2011. In The Great Recession and Attitudes Toward Home-Buying, the Research Institute for Housing America (RIHA) and the Mortgage Bankers Association (MBA) document that close to four out of five adults believe it's currently a good time to buy real estate.

Loan officers are hoping that buyers will emerge this year, since refinancing volume should weaken. Origination forecasts for 2012 predict that rates will edge higher, dampening refi demand. MBA's 2012 residential origination outlook calls for refi production to fall from $858 billion to $566 billion.

But look for an uptick in purchases, adds Frank Nothaft, chief economist at Freddie Mac. He expects residential sales to rise 3 percent to 5 percent this year.

Today's market conditions have brought housing affordability to historically high levels, reports the National Association of Realtors[R] (NAR); Chicago. Sales of new and existing homes will rise s percent in 2012 compared with last year, NAR predicts.

Renters in close to half or 28 surveyed metro areas now find that a mortgage on a median priced house--plus homeowners insurance and properly taxes--costs less than an average rent payment, reports The Wall Street Journal.

"Home prices and mortgage rates have fallen so far that the monthly cost of owning a home is more affordable than at: any point in the past 15 years and is less expensive than renting in a growing number of cities" the Journal notes.

Apartment rents increased 4 percent in 2011, and are expected to rise by a greater amount this year, according to The Wall Street Journal. Renters are noticing this trend, and see home purchasing as an attractive option.

Gary Engelhardt, economics professor at Syracuse University, Syracuse, New York, who conducted the RIHA study, adds that "positive sentiment toward home-buying is strong, particularly among young, educated, white and Hispanic households, and is attributable to low house prices and low mortgage interest rates."

Improving job prospects--especially for potential first-time buyers in the 25-to-34-year-old age bracket--are heralding a stronger housing market, contends Jed Kolko, chief economist for San Francisco-based Trulia, a real estate website. He also foresees the housing market strengthening in 2012. "Alter 14 months of job gains," explains Kolko, "I expect the economy to continue its slow but determined recovery."

"Americans have experienced the most severe housing market downturn since the Great Depression" notes the RIHA study. Yet increased home affordability now is making-prospective buyers more upbeat. "Homebuyer sentiment falls as the unemployment, rate increases," adds Engelhardt, "and improves as job growth returns and housing becomes more affordable."

Data from the University of Michigan s Survey of Consumer Attitudes was analyzed in the RIHA study to determine how Americans' views of homeownership have changed since the housing bubble burst. "Current positive home-buying sentiment is around its long run average level," the study asserts.

Eager to buy

Fannie Mae's National Housina Survey also points out growing optimism among potential buyers. "For the first time in six months" states the November 2011 survey, "Americans expect home prices to rise over the next 12 months."

Rental costs also are forecast to increase more than 3 percent over the coming year, reports Fannie. Just 6 percent of Americans expect rental costs for single-family homes to drop over the next 12 months. And almost twice as many adults anticipate purchasing their next home compared with those who plan on renting.

Yet just 10 percent of the consumers in Fannie s survey consider now to be a positive time for home sellers. RIHA's study also notices this disparity between buyer and seller optimism, and explains how it affects housing markets. "What is different about the current recession," states RIHA's report, "is that positive home-selling sentiment is at a historic low. Indeed, the sell side of the market is dominated by deeply negative sentiment."

Sellers' reluctance to accept current prices prevents transactions from occurring, notes RIHA. Engelhardt adds that from 1992 to 2005, 40 percent to 60 percent of sellers viewed the market positively But since 2005, sellers have become wary Just 7 percent of prospective sellers today have positive sentiments, he notes.

"Potential sellers have not adjusted their price expectations downward fast enough to bring buyer and seller sentiment in line with one another," comments Engelhardt. He adds that seller expectations may be too lofty because sellers remember what price a neighbor previously sold a home for.

Owners with underwater mortgages also may prefer to wait until prices have recovered before selling, instead of having to bring cash to the closing to pay off their loan. "About 20 percent of all homeowners with mortgages nationally are underwater," states the RIHA study. Closing this gap will be necessary for a complete housing recovery to occur.

Howard Schneider is a freelance writer based in Ojai, California. He can be reached at
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Title Annotation:Broker Business
Author:Schneider, Howard
Publication:Mortgage Banking
Date:Feb 1, 2012
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