Housing market update from NAR's chief economist

The chief economist of the National Association of Realtors, Lawrence Yun believes that in many places, the housing market will turn around by the end of this year. He blames the current problems on subprime loans. "It had gotten to the point where anybody who showed up at the door got a loan," he says. Fifty-three percent of foreclosed homes are those acquired by subprime loans. The markets with the highest percentage of subprime loans saw the greatest price inflation, then the greatest depreciation.

Yun predicts that sales will pick up in the second half of 2008 because:

• Improving affordability
• FHA to become prevalent at low rates
• Jumbo loans improving
• Revisiting the "declining market" policy
• Economy expected to improve
• Permanently higher GSE and FHA loan limits are possible
• Possible enactment of a homebuyer tax credit

He says that the home sales activity has stabilized, however it is now at the same level as in 1998. This current level is unsustainable because the population has increased by 25 million, 13 million new jobs have been created, and the market has higher home prices, but lower interest rates. The vast middle America is under priced based on the fundamentals of income and mortgage rates. Within 5 years 99% of the population will see higher values than they do today.