We're now four years from the peak of the housing market. Perhaps that is enough time to graduate. Housing economist Tom Lawler says what's different about this housing slump is how rapidly prices deteriorated. In previous housing downturns, prices were slow to come down as people who didn't need to move stayed put. But the foreclosure crisis changed that equation; and as we've witnesses, prices have plunged in the last couple of years. While a third of home sales were distressed in the last month, that's an improvement from the 50% rate at the beginning of the year. There's a wildcard though. How much inventory are the banks holding off the market? Mark Zandi of Moody's economy.com expects another wave of foreclosures later this year, but he sees the market improving after that.
I know some first time buyers looking to purchase before the tax credit expires in November. And I know others looking for great bargains, which has lower priced homes in the DC area moving pretty quickly. As they say, all real estate is local - how do things look where you are?
Comments
According to an analysis from Credit Suisse completed sometime ago. When unemployment was to
hit 8% it was projected that the foreclosure rate would be 8.1 million over four years. The unemployment rate is now at 9.4%, U3. From the analysis the foreclosure rate is directly tied to
the unemployment rate. Thus, the housing market
can not be expected to recover until the US
employment picture improves.
It may not be long before housing prices stabilize but it's going to be quite a while before homeowners recover their lost real estate value. If a home lost 33% of its value during this crisis it needs to go up by 50% to get back to even. That's not going to happen overnight. So people will be more inclined to stay in their existing houses and not move-up.
Once the first-time buyer incentives disappear and foreclosed properties are gobbled up we're going to be left with a flat market. And then what happens when interest rates increase? Do values go down again? And if real estate appreciation lags behind other investment opportunities, do people start renting and investing those excess funds elsewhere? This is not just a housing slump. There are too many other variables--- $x trillion deficits, 18% real unemployment, etc. I don't think we're going to recover as quickly or as painlessly as some would have us believe.