Something to Think About…

Housing Recession and the Economy -
http://www.strategic-briefs.com/BIB/ARMCurrent.pdf

For those looking for a home, the news from the housing sector is about as bleak as it gets and has most of the economic analysts in a sour mood. Home prices continue to fall despite the assertion that the housing market has reached bottom. Now the consensus is that home prices will not stabilize until sometime early in 2012 but there are some who really do not expect the market to bottom out until well into the year. The reasons for the continued decline are the same as they have been for almost four years now. The most important factor is the glut of homes for sale couple with a serious shortage of willing and able buyers. It is about as classic a case of demand and supply mismatch as one could find these days. The two most important factors on the supply side include the continued wave of foreclosure activity and the fact that there was such a massive glut of new homes built during the boom. The fact remains that for many markets there are just too many homes for sale.

The demand side is weak and that has severely limited the options for sellers. The traditional strength of the housing market has been people looking to trade up. They are the existing homeowners who want a bigger or at least a different house. This is a market that has all but vanished and what is left is the new home buyer and the investor that is buying up bargains. Neither of these buyers is going to provide much for a home seller who wants to get something substantial from their home sale. The only people selling in these circumstances are those who are desperate to sell and they will take whatever price they can get. This is a factor that has contributed to the reduction in the price of homes. It is only those who absolutely have to sell that are trying the market and that tends to distort the numbers. Those who can wait for the market to improve are doing so and without some balance the market is determined entirely by the buyer. Until there is a change in the seller’s situation, the market will stay stressed. An improvement in the housing sector will essentially have to wait for an improvement in the economy as a whole. The desperate sellers are generally those who have lost their jobs or have been forced to relocate for one. The connection between employment and the housing market is a close one. One positive point is that real estate is exceedingly local and home prices are volatile from neighborhood to neighborhood. Even in some stressed cities there are areas where home prices are stable and even rising.