U.S. & Global Economies
Healthy Housing Sector? Not Until 2012
Mortgage rates are about as low as they can go. What this market needs is jobs.
By Jerome Idaszak, Associate Editor, The Kiplinger Letter
August 25, 2010
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As expected, both housing construction and sales are plummeting as a result of the end of federal tax subsidies that helped boost buying earlier this year. Although the descent looks dire, it will take until the fall to assess the true condition of housing after the tax-induced boom and bust.
We continue to think that starts and sales will level off in coming months, gradually improving in 2011 as the economy improves, and that the decline in prices is about over. Increased net job growth is key. Fewer job losses would mean fewer homes heading into foreclosure. The total is now expected to hit about 2 million this year and continue at that level next year. And more hiring would stimulate more home buying, especially with rates on 30-year fixed mortgages at a 40-year low of 4.4%. Those rates won’t rise until the economy picks up -- not in the cards until sometime this fall.
Still, recent squishiness in the economy raises the odds that prices will slip further. With home values about 25% lower than their peak in 2006, roughly one in five mortgage holders owe more on their loan than their house is worth. If the economy doesn’t firm up, more foreclosures -- including some voluntarily by homeowners who can afford to pay but choose not to because they are upside down on their mortgages -- will put more downward pressure on prices.
In any case, it will be 2012 before housing returns to more normal conditions, with housing starts of around 900,000 and annual sales of more than 6 million homes. For at least a few more months, uncertainty about the economic recovery will weigh on the market. Sales of existing homes in July fell 27% from June. Sales of new homes in July fell 12.4%. As a result of scant buying, housing starts of single-family units fell 4.2% in July.
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Reader Comments (2)
Posted by: Chris at 08/26/2010 12:31:27 PM
Mr. Idazak forcasts the econonomy will improve and the decline in prices should be over in 2011. Well sir, it seems your insight continues to regurgitate your past forecasts and that we can all return to the good ol days 2005 etc. And then you finally confirm the key to this recovery is (drum roll please): JOBS!!!...Anyone could have told you this. Yet, were so desperate in saving housing, when in fact this country should invest in affordable education, adult re-training, small business etc...not trying to save housing. The result which destroyed so much of this countries wealth and those responsible individuals who did not gambel and buy a house!...Please stop continuing to lobby for the National Realtors Association; National Homebuilders Association and move on.
Posted by: Nomen at 08/30/2010 11:06:00 AM
"What this market needs is jobs." What jobs???????? No employer wants to pay a living wage or include any benefits. The last construction sites I visited had almost no English speaking workers. Local manufacturing jobs only pay minimum wage for labor and $12/hour for skilled trades. Several young U.S. engineers that I know of are canvasing the country looking for work. I really don't see any bright prospects for the skilled or unskilled. Just how are they going to buy $200,000 houses??? As long as the skilled job outsourcing and illegal labor continue, there is only one direction things can go. DOWN!!!!