Reprinted from REALTOR® Magazine [June, 2010] with permission of the NATIONAL ASSOCIATION OF REALTORS®. printed in my July Newsletter, by Lawrence Yun, NAR Chief Economist:

“…There are some cautionary signs ahead. A big, albeit temporary, slump is on the way. Contract signings for May and June will be very weak. Do not be at all surprised if the pace of existing-home sales falls to 10-year lows of around 4.5 million annualized units for a couple of months before the housing market tries to get back on its own feet absent any government stimulus. If resales bounce back to a 5.5 million unit annualized pace toward year’s end then the housing market can be said to be fully back on a healthy track. It will be well short of the 7 million unit sales set in 2005, but that was an artificially fired-up figure resulting from terribly lax mortgage underwriting standards and a sizable number of speculative home purchases.

Getting back to 5.5 million annual existing-home sales will correspond to the level of home sales back in 2001. Back then, there were 130 million payroll job holders in the country. Today the worst in the job market appears to have passed. Excluding the artificial Census-related jobs, the private sector still added 495,000 in the first five months of this year and the total employment stands also at 130 million.

One big difference in the housing market now versus then is mortgage rates. The average 30-year fixed rate so far this year has averaged around 5.0 percent, compared to the average 7.0 percent rate in 2001. And while underwriting standards were not very stringent in 2001, they were not necessarily lax either. Provided that mortgage rates remain reasonable favorable for the foreseeable future – that is, remain at or under 6 percent – and if jobs continue to be added to the economy – my forecast is for 1 million new jobs in the second half of the year and another 2 million in 2011 – then home sales should easily be able to churn out a 5.5 million unit annual sales pace. Remember that total sales were 4.9 million in 2008 and 5.2 million in 2009, so settling in at 5.5 million will be a respectable improvement from the past two years.”

The fixed 30 year interest rates are holding under 5% which should help us on our way to the 5.5 million that will be a positive step in the right direction for home sales.