TOPICS > Economy

Foreclosures, Unemployment, Confidence Continue to Drag Down Housing Market

May 31, 2011 at 12:00 AM EDT
A new report released Tuesday showed the state of the U.S. housing market has grown even more bleak as prices have dropped for more than two consecutive quarters. Gwen Ifill, RealtyTrac's Rick Sharga and Mark Zandi of Moody's Analytics discuss which factors are responsible for the continuing strains on the market.

GWEN IFILL: A new report out today shows the state of the housing market has grown even more bleak. The new figures from Standard & Poor’s found home prices have continued to drop for more than two consecutive quarters.

Homes lost value in all but one of the 20 major markets tracked by the Case-Shiller index during the first three months of this year. Compared to a year ago, prices are down 7 percent or more in several cities. In Atlanta, Cleveland, Detroit, Las Vegas, prices are headed toward levels last seen more than a decade ago.

But what is driving this stubborn downward pressure?

For that, we turn to Rick Sharga, senior vice president of RealtyTrac, a website that publishes data on real estate and foreclosure trends, and Mark Zandi, chief economist at Moody’s Analytics.

Rick Sharga, are these numbers proof of a double-dip recession, that term we have all feared?

RICK SHARGA, RealtyTrac: Well, certainly not a double-dip recession in the overall economy. But you can make an argument about the double-dip in the housing market. It just depends on your definition of a double-dip.

Is a 5 percent drop compared to a 20 percent drop a couple of years ago really a double-dip, or is it just a continuation of a downward trend that the market is trying to correct? Not good news, however you want to define it.

GWEN IFILL: Mark Zandi, in your opinion, what are the driving factors, to say the two or three big driving factors here?

MARK ZANDI, Moody’s Analytics: Well, obviously, a 9 percent unemployment rate is a problem. A tough job market makes it hard for people to go out and buy homes.

I think the foreclosure crisis is a very serious weight on the housing market. We have millions of loans in the foreclosure process that are going to go through and are going through to a distressed sale. And those homes get sold at a big discount, a big price cut. And that’s driving prices down as well.

And confidence — if you look at the consumer confidence numbers, people are still very nervous and scared. And, of course, nothing takes a higher level of confidence than signing on the dotted line to buy a home. So, if people aren’t feeling really good about their financial situation, that’s going to be hard on the housing market.

GWEN IFILL: Rick Sharga, what — would you agree with that, and what would you identify as the major driving factors in this?

RICK SHARGA: I think Mark is dead on. I think he’s probably hit the major identifying factors.

It really comes down on the one end to a supply-and-demand imbalance. The inventory far, far outstrips the buying activity currently going on. I think one of the exacerbating factors is that it continues to be stubbornly difficult for the average homebuyer to qualify for a loan. We have historically low interest rates, and relatively few people who qualify to get these loans.

And I don’t think the foreclosure problem can be overestimated. A number of the cities that you’re focusing on with the largest drops, Las Vegas, Cleveland and Detroit among them, have been among the poster children for markets that just have extraordinarily high numbers of foreclosure properties at remarkably low prices that pull the entire market down with them.

GWEN IFILL: Mark Zandi, you talked about confidence. I wonder if that’s not affected when we talk about these foreclosure numbers. People look at how badly this all went after the bubble, and they think to themselves, you know, I don’t really need to own a home anymore.

How much of that is playing a part in this?

MARK ZANDI: Well, I think that is certainly playing a role. I mean, I think nobody wants to catch the proverbial falling knife. So when prices are weak and falling, you don’t want to take the plunge, buy a home, and then, of course, lose value six, 12 months down the road. So, it’s a bit of a chicken-and-egg kind of problem.

People are very nervous that if they buy today, that the value of their home will be worth less in the future. And it’s probably a deeper longer-term issue as well. Many people are viewing housing very differently than they did in the past.

Like, for example, I know my parents thought of their home as a way to fund their retirement. I’m just thinking about my home as hopefully holding its value. But my son, my kids are probably thinking, you know, is this a good buy at all, if the prices in their lifetime have fallen so sharply?

So, I think attitudes with respect to owning a home, certainly as an investment, are changing. And that’s affecting demand as well.

GWEN IFILL: Mark — Mark — Rick Sharga, is there another vicious cycle here, which is, if you worry that you cannot get a home, if you worry that you can’t get a loan, if you’re worried that you cannot keep a job, that all of that drives lessened demand as well for all these homes clogging up the market?

RICK SHARGA: You know we recently surveyed potential homebuyers across the country. And the number that jumped off the page at me was that 40 percent of the renters we surveyed said they have decided never to buy a house.

That number just — just hit me right in the face, because we’re coming only a few years off historically high levels of homeownership, I think almost 69 percent.

And the next generation of homeowners, to Mark’s point, 40 percent of them have already opted not to participate in the housing market. So, it’s a frightening number. The only reassurance I can give is that we do know that consumer sentiment has a way of swinging wildly back and forth.

So, if we do begin to see job creation, if we do begin to see a return of consumer confidence, if the housing market begins to stabilize, hopefully, that consumer sentiment can swing back toward where we have a more active buying market.

GWEN IFILL: Mark Zandi, we talked about the 20 cities involved in this particular study. Is this a regional problem that we’re talking about now, or are we talking about a true national overhang, a hangover from the boom years here?

MARK ZANDI: Well, it’s a national problem.

And every corner of the country has been impacted. Prices are down almost everywhere. There are some bright spots, you know, Texas, for example, parts of the Farm Belt. But outside of that, we have seen foreclosures increase, house prices decline.

So, yes, I think you could — you would consider this a national house price decline. And, in fact, it’s — it’s unprecedented. The — you would have to go back to the Great Depression in the ’30s to find a time when so many markets have suffered such large price declines. So, it is a national phenomena.

GWEN IFILL: Well, let me stay with you for a moment because you mentioned the Depression.


GWEN IFILL: That was obviously the biggest economic shock that any of us have — had experienced or perhaps our parents experienced. How much of this slowdown in the housing market is going to end up driving the entire economy’s recovery off-track?

MARK ZANDI: Well, that’s a good question.

You know, I think the economy, it is growing. And it can continue to grow without housing, but it certainly cannot flourish. I don’t think this economy really can engage, it can’t create the kind of jobs we need to bring down unemployment in a substantive way, unless housing is headed north.

And in every economic recovery that we have experienced since the Great Depression, housing has led the way. So we need housing. And we need it to come back. I think there are some good things that are coming together.

But the longer we have to wait, the more nervous I get about the recovery and the economic expansion.

GWEN IFILL: Rick Sharga, do you see any good things that are coming together? And should they be given by the federal government or by the private sector or the — even state governments?

RICK SHARGA: You know, neither of the government initiatives that we saw last year, either HAMP to suspend foreclosure activity, or the homebuyer tax credit, really had the intended effect.

In fact, after the second tax credit, sales volume drove — went so far down, that it pulled home prices down perhaps even further than they would have gone otherwise. I think, unfortunately, the remedy to the housing market right now is probably time. We need time to create more jobs. We need time for consumer confidence to come back.

We need time for lenders to actually feel comfortable enough to start making loans on properties that have values that are stabilizing. And then the market will start to recover on its own. But I don’t see government intervention as being a part of the solution right now.

GWEN IFILL: Is this a way to — is there any way to know whether this is an anomaly for now or it’s a long-term problem?

RICK SHARGA: The continuing falling of home prices?


RICK SHARGA: I think there’s probably a little bit more to go. I would be interested to hear what Mark said.

But I think we’re very close to the bottom. And, unfortunately, we will probably bump along that bottom for a couple of years while we go through this inventory of distressed properties.

GWEN IFILL: Do you agree with that, Mr. Zandi?

MARK ZANDI: Yes. You know, I think the key statistic for house prices are the homes for sale that are distressed, that are foreclosure and short.

And as that share rises, prices will fall. Almost the arithmetic of it is that prices will fall. And I do expect the share of sales that are distressed to continue to rise through the end of the year. And so prices probably will bottom out at the end of this year.

And then by this time next year, I think we will start to see some true price stability, some price gains. So, I think we have to get through this last mountain of foreclosed property. And on the other side of it, I think we will be in measurably better shape.

GWEN IFILL: Mark Zandi at Moody’s Analytics, and Rick Sharga at RealtyTrac, thank you both very much.

MARK ZANDI: Thank you.

RICK SHARGA: Thank you.