We all knew housing would sputter after the expiration of the federal home buyers’ tax credit. Of course, we also all hoped that the economy would be on steadier footing by then, and would itself provide some stability to the housing market. Well, unemployment is coming down—it’s now at 9.5%, compared to 10% in December—but that’s still pretty elevated, especially once you take into account people who are working fewer hours than they’d like to. So now the question is: Are we headed for a double dip in housing as a result?
In recent days, a number of publications have hazarded a guess. Most, including the WSJ this morning, have concluded that the outlook isn’t good: “In major markets across the country, home sales are deteriorating, inventories of unsold homes are piling up and builders are scaling back construction plans.” The other day I was speaking to a mortgage broker in Boise, Idaho. When I wrote this story just about a year ago, she was cautiously optimistic that new buyers flooding into the market would juice sales more broadly. Nowadays, she’s pretty pessimistic: the only stabilization she’s seeing is at the very low end of the market.
I have no doubt that if the economy picked back up, the housing bubble correction would hurt a lot less. But I think it’s important to keep in mind that the adjustment back to normal is a broad, structural one which would be happening anyway. The easiest way to think about this is by considering the homeownership rate. Through most of the 1970s, 80s and early 90s, about 64% to 65% of Americans owned their homes. In the late 90s, that rate starting climbing, getting all the way up to 69% in 2004 and staying in that neighborhood through 2006. We’re now back down to 67%, but I think there’s a decent chance that’s still on the inflated side.
Returning to a sensible, fundamentals-based housing market is painful, but ultimately, it’s something we’re going to have to do, one way or another.