Spring could signal a rebirth for the long suffering U.S. housing market even as the economy's weakest link is stripped of government life support.
House sales will be stoked by buyers sprinting to cash in on a federal tax credit program before it expires in April. Signs the U.S. economy has begun to create jobs could also lift business.
Make no mistake, the recovery will be arduous due to high unemployment and foreclosures. But the sector is unlikely to nosedive once the government removes safety nets designed to elevate housing from its worst crash since the Depression, industry experts say.
"The doctor is pulling off the life support system hoping that the patient's heart beats on its own," said James Angel, associate finance professor at Georgetown University's McDonough School of Business in Washington.
Housing dragged the U.S. economy into recession and lags a rebound that began in the second half of 2009. A housing recovery and job growth are key to keeping economic expansion alive as government stimulus peels off.
Federal Reserve purchases of more than $1.4 trillion in mortgage-tied debt slashed home loan rates to record lows while tax credits of up to $8,000 have sealed the deal for many buyers.
Those crutches are being removed, with Fed buying ended March 31, the tax credit window set to close on April 30 and mortgage rates just falling from an eight-month high.
Angel is among analysts who expects a housing recovery to take root. It will come in fits and starts, with some areas still hashing through stockpiles of foreclosures while others improve with job creation.
Buyer traffic is rising as the weather warms after an unusually harsh winter, with average home prices still 30 percent below 2006 peaks and mortgage rates historically low.
"We think housing could become self sustaining with a sufficient surge this spring and job creation in the second half of the year," National Association of Realtors (NAR) spokesman Walter Molony said.
The real estate industry clamored for, and last year got, an extended first-time buyer credit and a move-up credit but another extension is seen unlikely barring a deep setback.
Almost 3 million first-time buyers and 1.5 million repeat buyers will have taken advantage of the credits, the NAR estimates. Contracts must be signed by the end of April and loans closed by June 30.
The group reported a surprise 8.2 percent jump in home contracts signed in February, with multiple offers on some properties, driven by a push for the credit before it expires.
That bodes well for spring sales, a harbinger of the year's activity, after four months of falling new home sales and three months of existing home sales declines despite incentives.
Colin McKinney got in under the gun, closing around March 23 on a $105,000 three-bedroom foreclosure property in Jacksonville, Fla.
"The $8,000 tax credit was a big, big incentive and I really don't think I would have purchased without it," said McKinney, 25, a full-time student and Marine Corp reservist.
In the Chicago metro area, March sales jumped 35 percent from a year ago while pending sales spiked 100 percent from March 2009, RE/MAX International in Denver noted.
The tax credit has "done its duty and it's time to let it go and see how housing settles out," said Margaret Kelly, chief executive of RE/MAX. "We've probably reached the worst but will bump along the bottom" with 15 million people unemployed.
Lending support, 30-year rates should stay under 6 percent this year, Freddie Mac said. Rates are near 5.07 percent just after Fed mortgage buying stopped and 10-year Treasuries rose to near 4 percent. A record low near 4.75 percent was set last year.
Stepped-up government efforts to get lenders to renegotiate terms for borrowers at high default risk should moderate the flow of distressed sales that could sharply cut prices anew.
Some 5.5 million home loans are at least 90 days late or in foreclosure, which will take years to work through and keep prices bouncing around the bottom, Barclays Capital said.
If it turns out housing can't hold it's own, a tax credit or Fed mortgage bond buying could resurface, experts agree.
In an election year, expecting more federal housing help is not a bad bet, said Bill Cheney, chief economist at John Hancock Financial Services in Boston, who thinks the tax credit should be extended.
"I do think that the economy is actually picking up and there's a good chance that overall we'll see better job and GDP growth than the consensus," Cheney said. "But the housing market is still the big weak spot and still does need help."
Fed Chairman Ben Bernanke said there has yet to be evidence of a sustained housing market recovery.
But developers like Lisa Gomez who struggled through the crisis say the market looks like it could be ready to stand on its own feet.
"We're way less doom and gloom than we were a year ago, but we've got a long way to go," said Lisa Gomez, executive vice president of development at L+M Development Partners. "We've seen activity from our buyers, we've seen renewed willingness to lend from our lenders."
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