Sunday, January 13, 2013

Has Housing Bottomed?

When you ask where housing prices are going my answer would have to be, I don't know, and neither do they. However I can state several things without reservation. Calling the home buying we have seen in both the new and existing markets "pent up demand" may be a stretch. Many houses still remain empty or under leased, this means the occupants are not fulfilling their obligations. With population growth slowing, values changing, and slightly more occupants per home, less houses will be needed. Much of  what we are currently witnessing has been a repositioning and refinancing at historically low rates. In coming quarters do not expect housing to lift the GDP as much as it has recently in coming quarters.

Figures are based on a year over year performance and the home-builders have harvested the low hanging fruit. The bounce from depression levels may be behind us, the effect of low interest rates and new home buyer programs that have brought us to this point may be running out of steam. You need a job or income to buy and properly maintain a home. The government must sooner or later face up to the fact that their current deficit spending is unsustainable and reduce the money flowing to low income people. The demographics of the baby boomers cutting back on spending and downsizing will also effect the number of new units going forward. This will extend to the style and size of new homes being built, expect smaller to become the norm.

So as the market churns and job creation remains tepid, where could are all these new buyers we keep hearing about be coming from? Currently the Obama administration is engaged in a full court press to make more home loans available to people with weak credit. Officials say this effort will help power the economic recovery. Obama's economic advisers and outside experts say the nation's much celebrated housing rebound is leaving to many people behind, including young people looking to buy their first homes and individuals with poor credit records.

Administration officials are working to get banks and lenders to take advantage of taxpayer-backed programs offered by the Federal Housing Administration that insure home loans against default. They are also urging the Justice Department to provide assurances to banks that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default. While supportive to prices near term this spells trouble in the years ahead, we are indeed building a recovery in housing on a foundation of sand.

Footnote; When you look back over history you quickly realize that just a few years back in your grandparents day the world was a far different place. Today the time and skills to maintain a home do not exist with many American homeowners. Owning a house is not for everyone and it is not in the interest of society to "over promote" this idea. Houses have mortgages and obligations that often outlast the poorly constructed and maintenance heavy buildings of today, expect these problems to be around for some time.


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