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Housing market showing signs of turnaround

Last year was so dismal, home sales almost certainly have to go up in 2012. If home prices stabilize later this year, as many analysts expect, the housing market will be set for a turnaround. 

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"The housing market continues to improve," wrote Brian Wesbury, chief economist at First Trust Advisors L.P., a financial services firm based in Wheaton, Ill., in an analysis Friday. Home builders seem to be anticipating an increase as well, he noted in his analysis, as the number of building permits continues to increase gradually.

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The area where there's little sign of improvement yet is home prices, which continue to fall. In January, they were down 2 percent from a year earlier, the NAR reported. But several economists expect them to stabilize later this year. "House Price Bottom in Sight" was the title of a Goldman Sachs economic analysis of the market in December. 

In some metro areas, the recovery is already under way, says Mr. Hummer, using a RE/MAX compilation of January data not yet incorporated into the NAR report. Median sales prices of homes in the Phoenix metro area have jumped 9 percent in the past year, he points out. Orlando, Fla., is up 15.8 percent during the same period; Miami, a whopping 23.8 percent. 

A big question mark is the direction of interest rates. One reason that home sales have rebounded is extremely low mortgage rates, which have not been seen for more than 50 years. But the Federal Reserve program to push down mortgage rates ends at the end of June and economists are divided over whether the Fed will inaugurate another round of purchases of mortgage-backed securities to keep rates low.

The direction of the economy is also crucial. The last two months of employment data has been surprisingly buoyant, suggesting that the economy has some momentum. Some economists expect growth to slow, partly because of a slowdown in Europe and some emerging markets. Not everyone agrees that a slowdown there will spoil the US recovery or the positive signs in housing.

It will take time, given tight credit and cheaper prices for existing homes, but "sometime over the next several years, sales will rise to an annual pace of about 950,000," wrote Mr. Wesbury. That would be nearly three times the current level and signal a return to good times for home builders.

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