Wall Street & Markets

Housing Market: What’s Ahead?

By John Curran | August 29, 2010 | +

Are housing prices near a bottom?  It’s not just policymakers, realtors and bankers who  yearn for the turn. Anyone who owns a house, a condo or coop is surely wishing for some modest improvement.  Not the least of these hopefuls is homeowner-in-chief Ben Bernanke, chairman of the Federal Reserve Board, who just this past Friday lamented the heavy toll that tumbling housing prices are having on residential investment. Here’s what Bernanke had to say about housing in his speech to economists at Jackson Hole, Wyoming:

Household finances and attitudes also bear heavily on the housing market, which has generally remained depressed. In particular, home sales dropped sharply following the recent expiration of the homebuyers’ tax credit. Going forward, improved affordability–the result of lower house prices and record-low mortgage rates–should boost the demand for housing. However, the overhang of foreclosed-upon and vacant housing and the difficulties of many households in obtaining mortgage financing are likely to continue to weigh on the pace of residential investment for some time yet.

That’s a polite way of saying the housing market should improve but it probably won’t.

Here’s a more graphic description of the current housing market  from economist David Rosenberg at Gluskin Scheff:

The number of people who are “upside” down on their mortgage is still around 11 million or 23% of the mortgage population. That number has actually come down in part because some have defaulted and others are moving to pay down debt — but further home depreciation could well cause this number of people “under water” to start to rise again. Meanwhile, 14.4% of borrowers have missed at least one mortgage payment or are in the foreclosure process, which is a tad better than the 14.7% in Q1 but amazingly still higher than the 13.5% share a year ago when the economy was still struggling to get out of recession.

The bottom line for housing  is that the bottom will be long–perhaps very long– and bumpy. Even in cities where the numbers are starting to improve slightly, such as San Diego, the inventory of unsold homes never seems to decline. What’s more,  we haven’t yet seen the legions of Baby Boomers who are planning to unload their McMansions in favor of some cute bungalo by the beach. They, of course, are just waiting for the market to improve.

Related Topics: Economy & Policy, Wall Street & Markets

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  • http://rodgermmitchell.wordpress.com Rodger Malcolm Mitchell

    This is not rocket science. The price of housing is based on supply and demand. The demand is based on population growth (favorable), tax and financing benefits (favorable) and people’s ability to pay (unfavorable).
    .
    So, to increase demand, we have to increase people’s ability to pay, which means putting money in people’s pockets, which requires adding money to the economy — which requires federal deficit spending. Period.
    .
    The debt-hawks have everyone so bamboozled, our politicians are afraid to do the one thing that can end this downward spiral — spend and then spend more.
    .
    And no, debt hawks, deficits don’t cause inflation (We’re edging into deflation, if you hadn’t noticed.) And again no, debt hawks, our children will not pay for deficits. The government will pay, as it always has, simply by creating money. That’s why we went off the gold standard in the first place.
    .
    Meanwhile, people are homeless and starving, Social Security is being diminished, we don’t have universal health care, the infrastructure is falling apart, our schools are underfunded, the states counties and cities are going broke, and NASA is too busted to do what it did 40 years ago — all because of wrongheaded fear of federal debt, stoked by economic ignorance.
    .
    Rodger Malcolm Mitchell

  • http://stephenpoo.wordpress.com stephenpoo

    Rodger I have to agree with much of what you said.
    On the other hand investors are buying up homes at the auctions if they can get them for half of the price they think they can sell them on the market.
    Although I have seen many properties whose back taxes owed makes it already over market price. All not very good for us of course.
    Jobs and some feeling of prosparity have to come first before a housing rebound. Have we even hit bottom yet?
    Maybe a John McGlocklin (love that show) type anwer NOT YET
    BYE BYE

  • http://rodgermmitchell.wordpress.com Rodger Malcolm Mitchell

    Assume a formerly $300,000 house languishes on the market, and finally sells, not to a legitimate buyer, but to an investor for, say, $100,000. At what price can the investor realistically expect to sell it and make a profit, if the original owner had to settle for $100,000 from the investor?
    .
    My advice: Don’t buy homes on spec — at least not until the government restarts some real stimulus efforts.
    .
    Rodger Malcolm Mitchell

  • geaugailluminati

    with the three fastest growing lines of work (food serv, home health care, stock clerk) all paying less than $10 hour, housing prices still have a ways to fall…

  • http://www.hempsteadconsulting.com Gerard (Jerry) Hempstead

    The question posed is “has housing hit bottom?”
    Any unemotional analysis of the facts in just about every market is that, no housing has quite a way to go before prices bottom out. People are unemployed and underemployed and or worried about loosing their job or having their job or their pay downgraded. These people ate not going to be looking at moving or moving up in house. There is a tremendous amount of inventory on the market. More will be coming on the market because so many are not paying their mortgage. Some because they can’t afford to, some because the value if their home is so far under water that they dare not invest more in a poor investment. With the banks reeling from all the bad paper they are already holding and so much real estate they now have from forclosures they are not real motivated to lend money at these interest rates to buyers who might burn them in the future.
    Real estate has another bubble ahead of them as does the stock market. The coming tax rates and the coming economic impact on companies of the healthcare bill will drive lay offs and offshoriing of jobs. Companies will once again struggle for year over year earnings improvements and once again to get there they will be forced to consolidate operations, close plants, lay off people and or move people to less than 30 hours a week to reduce their healthcare obligation. we are in for a very bumpy 24 months ahead and if you wait a while you can get a house for much less than the current prices.

  • vajim

    Sorry, Roger, I’ve got to throw the BS flag at this one. The ONLY proven way to get out of our financial predicament is for government to cut back on spending, get OUT of the market place, reduce business impediments and let the small business machine take us out of this recession. The government can’t print money fast enough to get us out of this mess, but the engine of capitalism has proven it can over and over agian.

  • mnemos1

    As long as 90% of the mortgages out there are guaranteed by the federal government, we don’t really have a housing market. What we have is the illusion of a housing market propped up by the government.

    This is not a function of the government spending too much or too little money. It is a function of the government doing wrong things. The length of time it will take for this to work its way out will not be a function of foreclosure rates, etc. – it will be a function of how the government tries to save face and avoid admitting how huge a screw up was made.

  • stichmo

    Sorry Vajim, but if you look at how we dealt with that last significant recession in the early 1980′s, you see that under President Reagan we raised government spending as a % of GDP for three straight years to then post World war II highs. It worked then as we started adding jobs in President Reagan’s third year in office.

    Show me a recession we got out of by government cutting spending.

  • laeconomist

    Rodger,
    You are wrong on multiple fronts. “we have to increase people’s ability to pay, which means putting money in people’s pockets, which requires adding money to the economy — which requires federal deficit spending. Period.” How does taxing money from people so that gov’t can spend it increase people’s ability to buy homes? The best way to increase people’s ability to buy homes is to have them work, accumulate capital and invest it in a home.

    “And again no, debt hawks, our children will not pay for deficits. The government will pay, as it always has, simply by creating money. That’s why we went off the gold standard in the first place.” So when the gov’t prints money, everyone pays the price through inflation. This reduces the value of your wealth (oops! a bad word to you I am sure) by the corrosive effects of inflation.

    Please pick up some basic econ books and do some homework before you spout off with your partisan economics.

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