- A slow labor market recovery. “Much hinges on the labor market and when that turns,” Sullivan said. But both the government’s payroll survey and the household survey show continuing, if moderating, job losses. “Employment is the No. 1 reason caution persists,” Crowe said. “We’re not going to add jobs for at least several more months.”
- Payback from the expiration of the home-buyer tax credit. “The tax credit is pulling people forward who were in the market anyway. So the sales pace isn’t quite as vibrant as suggested by the raw data. There could be a payback that materializes (in July) when the current version expires,” Sullivan said.
- Rising foreclosures. Moratoriums on foreclosures and an unworkable backlog that paralyzed many lenders made it look as if the foreclosure situation was easing in the second half of 2009, he said. Expect the pace to accelerate this year. “Serious-delinquency rates haven’t peaked yet,” said Nothaft. “That usually happens six to 12 months after the employment recovery begins.”
- Price pressures. A rise in bank repossessions of homes will undoubtedly create additional pressure on home prices, Sullivan said. “Home prices have stabilized, but is that permanent?” asked David Berson, chief economist for PMI Group, a mortgage-insurance firm. “You’ll see more price declines — part is seasonal because we always see declines in the winter, but we’ll see more delinquencies and foreclosures” and that could add to inventory hikes and price cuts. “It could be three years before we get back to the long-term trends of home-price appreciation,” Berson said.
- Tight lending standards. Mortgage lenders are unlikely to ease underwriting standards with the labor market soft and home prices unstable. That will crimp housing demand, Sullivan said.
- The potential for interest-rate hikes. Lenders may demand a bigger risk premium for home loans in this environment and with the Fed about to wind down its purchases of mortgage-backed securities there is a potential that interest rates will rise this year. “I’m not sure how great that potential is, but it is there,” he said.
The good news? “Once we get out of this there is going to be a lot of pent-up demand that is going to be released in 2011, 2012 and 2013,” Sullivan said.