By Ian McKendry

WASHINGTON (MNI) – The single-family housing market in the United
States remains in a holding pattern, but economists expect to see some
pickup from sales levels reported in May and June when data for July is
released Thursday morning.

“In general the worst is behind us in the housing market and we
should start to see some sustained, modest recovery,” Anika Khan,
economist at Wells Fargo told Market News International.

“We are likely at a bottom or near a bottom so you are going to
start to see more activity happen as bottom dwellers try and jump into
the market,” Khan said. She noted, however, that inventories of unsold
homes remain high and lenders are only willing to lend to the most
qualified borrowers.

Khan said even though housing affordability is extremely high “it
goes back to conservative appraisals, it goes to lending standards and
even as those who want to buy homes try to jump into the market, if they
can’t meet the conservative requirements it’s going to be very difficult
for them to secure homes.”

A prominent gauge of sales activity in the housing market is the
National Association of Realtors’ Existing-home sales report which
tracks the sales of homes that are already built. The report for July
will be released Thursday morning at 10 a.m ET.

The median forecast of 17 economists surveyed by MNI is for a
seasonally adjusted annual sales rate of 4.98 million homes. After
falling 3.8% in May and 0.8% in June, economists expect some pickup in
the upcoming report.

“We are looking for a bounce to 5.05 million units; that basically
just reflects the bounce in the pending index,” Mike Englund, chief
economist at Action Economics told MNI.

The NAR’s Pending home sales index, which tracks sales contracts
signed but not completed, rose 8.2% in May and 2.4% in June. The index
is traditionally a good precursor for what’s to come in the
existing-homes sales report, although it lags by a month or two as sales
can be held up for a variety of reasons.

“Essentially that two-month climb should prompt a bounce in July
existing-home sales — we may even see an upward revision in the June
data,” Englund said about the pending homes sales index.

Something else observers can watch for in the NAR’s data is an
increase in the median price of homes sold.

Starting October 1, 2011 Fannie Mae and Freddie Mac are expected to
lower conforming loan limits for single-family mortgages purchased by
the GSEs in higher priced locations from $729,750 to $625,000.

Higher loan limits for certain areas were temporary raised in 2008
to help support the housing market but will expire at the end of
September. The FHA, who also saw a temporary increase in loan limits,
will see their loan limits revert back to lower levels as well.

Khan said some people have and will continue to try and get in the
market before the conforming loan limits are lowered to avoid facing
increased median home prices.

In June, the median single-family home price measured by NAR
increased by 8.9% after increase 5.1% in May.

“The mix of homes and homes sales started to increase in the large
home segment as they try to rush in to try and beat that deadline,” Khan
said, adding that it has provided somewhat of a false indication of
where home prices actually are.

U.S. homes sales remain a pivotal point of emphasis for the
economic recovery, because as Khan said “housing typically is what led
us into a recovery in previous cycles.”

However, even as the economy begins to heal ever-so-slightly,
housing remains relatively flat.

“We would argue that existing-home sales have a natural floor at
about five million units which is essentially where we have been for the
last two years,” Englund said.

On a similar note, Khan said homeownership rates have come down
from about 69.0% to 65.9% and will probably be in the “mid 60’s” for
some time to come.

The decline in homeownership rates is due to a number of factors;
from high unemployment to conservative lending standards to fear that
housing prices could fall further.

Fannie Mae released a report Monday that said only 23% of over
3,000 surveyed Americans think renting a home is more practical than
buying, while 53% said they would continue to rent if they were to move.

The report also said 73% of single-family renters that were
surveyed thought it would be difficult for them to get a loan — likely
to be a continuing factor in lower rates of homeownership.

** Market News International Washington Bureau: (202) 371-2121 **

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