Modest U.S. housing recovery to prevail in 2016: poll

By Megan Cassella

WASHINGTON (Reuters) - Sales of existing homes in the United States are expected to pick up next year, although house price inflation probably will not, according to a Reuters poll of economists who predicted the nation's housing market will extend its modest recovery.

Weak wage growth, higher interest rates and a lack of available credit will continue to keep some buyers - particularly younger and first-time buyers - out of the market. These remain the biggest risks, according to poll respondents.

Of 22 economists surveyed Nov 17-Dec 1, 19 said they would describe the U.S. housing market recovery as "modest," with only three calling it "robust." None said it was fragile.

The survey forecast the S&P/Case Shiller composite index of prices in 20 metropolitan areas would close out this year with a 5.0 percent rise, a bit weaker than in the 12 months through September, the latest period for which figures are available.

Home prices are expected to rise only 4.0 percent in 2016, down from 4.2 percent predicted in the August poll, followed by the same steady 4.0 percent rate the following year.

The range of forecasts was narrow as well. None predicted prices to fall, or rise at double digit rates. Forecasts for 2016 ranged between a 2.0 percent and 8.2 percent rise.

According to the poll, existing home sales will rise to a 5.50 million-unit pace in the current quarter, up from an earlier forecast of a 5.40 million-unit pace, holding at that same rate in the first three months of next year.

Nearly all of the economists polled - 18 of 22 - said a decline in home ownership among young people was not a significant risk to the economy, though some said it would continue to restrain the housing market.

"The home ownership rate now looks to have bottomed out," said Matthew Pointon, a property economist with Capital Economics. "With foreclosure start rates back to historical norms and credit conditions gradually easing, more households will be able to move into the owner-occupied sector."

Some said the slowdown in home price appreciation should help entice first-time buyers into the market.

"Affordability is still better than normal," said Sal Guatieri, a senior economist with BMO Capital Markets. He said he expected sales to pick up due to "good pent-up demand from millennials," referring to people between the ages of 18 and 35.

On a scale where 1 is most affordable and 10 is the least affordable, respondents rated the U.S. housing market a 5 nationally. That compares with 6.5 in the UK housing market poll and 7 for Canada. [GB/HOMES] [CA/HOMES]

In a few weeks, the U.S. Federal Reserve is widely expected to lift its benchmark federal funds rate for the first time in almost a decade, from a record low of 0-0.25 percent. That is likely to be followed by gradual rate rises next year.

But analysts said mortgage rates need to rise by about 200 basis points from where they are now to seriously restrain the U.S. housing market.

They cited stagnant wage growth as one of the biggest risks to the market during the next year, while limited access to credit was also an important issue.

"The continued recovery in housing market activity relies on the return of mortgage-dependent first-time buyers," Pointon said. "For that to happen, credit conditions need to continue to gradually ease."

While the number of household formations is rising, many young people are still renting because of heavy student debt.

"Rents need to rise higher and debt needs to shrink further to chase them into home ownership," said Georgia State University professor emeritus Donald Ratajczak.

(For other property market poll stories, click:)

(Polling by Kailash Bathija and Khushboo Mittal; Editing by Chizu Nomiyama)

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