Recent conflicting reports about the housing market and whether or not it is truly in recovery have left consumers as well as those in the real estate business more than a bit confused; those whose business plan is dependent upon a full or quick recovery should proceed with caution. I believe the housing market is far from recovered, and, in fact, will not return to the levels of the past decade for many years—if ever. I see six reasons why the housing market peaks can not return, that it will never regain its past “glory days.”
● Robust home sales are dependent upon consumer confidence in the economy. Consumers must feel that both their personal economy as well as that of the nation is on sound footing before committing to such a major, long-term purchase, especially on the heels of the longest recession in more than half a century. Thus far, consumers are far from confident.
● A vigorous recovery of the housing market cannot occur as long as we have unusually high unemployment. While there is much disagreement on when and how our recovery will occur, the financial experts all agree that unemployment will remain at higher than normal levels for several years, and some projections do not indicate a recovery to “full” employment for as much as ten years. With at least 20 million unemployed or underemployed, and with awareness that many of the jobs lost will never return, a high rate of joblessness could possibly become the norm.
● The dramatic loss of home equity will significantly limit the pool of available move-up buyers. In the past, move-up buyers used the equity from their former home to help them purchase a larger/more expensive one; however, declining home values with the associated loss of trillions in equity means fewer sellers will have the resources to purchase another home.
● A continued high rate of foreclosures will depress both the housing market and the hopes of many potential buyers. The millions who have experienced foreclosure will be automatically ousted from the buying pool. For some, several years of damage to their credit rating will be the defining factor; and others will become permanent renters, avoiding the potential for further pain and the trauma associated with foreclosure.
● A slow increase in mortgage rates will reduce the number of qualified buyers. As we experience the higher mortgage payments associated with rising interest rates, many will fail to qualify for loans on the homes of their choice. Others, having been “spoiled” by the low rates of the past decade, will stay out of the market hoping for a return to those rates.
● Tighter lending restrictions will also result in fewer buyers qualifying for home loans. And the restrictions, combined with the declines in credit scores experienced by millions of consumers will only further reduce the number of buyers.
Additionally, there are other factors such as: high levels of consumer debt, changing demographics, and a diminishing of the appeal of home ownership as a result of experiences during the current recession, will only serve to dramatically alter the housing market for the foreseeable future. While there will always be a group committed to home ownership and will always be homes available for them to purchase, an expectation that the housing market will soon recoup its losses and regain its momentum, for me, seems extremely unlikely.
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