Will The Slow Housing Market Continue?



Despite interest rates that have been at or near historical lows for a year or more, the housing market has been sluggish at best. Even today with mortgage rates still below 5% one would think that home buying activity would be crisp, but that is not the case. There are a number of factors that are trumping low interest rates for the housing market, including high unemployment, an excessively high number of foreclosed homes on the market, a high inventory of unsold homes and declining home prices.



With official unemployment numbers stubbornly hovering near double digit levels, one would expect the economy to be sluggish. In addition, it appears that many people who are employed are not confident enough to take a leap of faith and purchase a home. Many are not totally confident about how secure their employment situations are. If one or the other spouse were to lose a job, or even if their work schedule were to be cut back, they could easily find themselves in a situation where they could not afford home payments. And with slow job growth, finding a new work situation would almost certainly be more difficult than in more normal times.



Some experts claim that there are simply too many foreclosed homes on the market and this inventory needs to be consumed before things can get back to normal. With another one million homes predicted to be foreclosed upon in 2011, about the same number as in 2010, this situation looks like it will remain on the front burner for some time to come. In addition, potential home buyers and investors were sometimes scared off by administrative errors which put the actual legal ownership of some properties in doubt. The robo-signers seemed to be violating the law in some states, and certain Wall St. firms that bought up lots of mortgages and packaged them into securities found it hard to keep track of the original ownership documents, as they were sent back and forth across the country. In many states original documents are needed to prove property ownership, so doubts arose about who actually owned some properties and who had the right to foreclose.



The high level of unsold housing inventory is another anchor on the real estate market. The current figure is about 3.7 million unsold homes, and this is about 80% higher than in more normal times. At current sales rates this is over 9 months of unsold inventory, and along with the other factors mentioned, this is clogging up the housing industry.



The final reason for the sluggish housing market is one that has only appeared for about the past four months. That is, the average price of homes being sold is falling, after having been going up in the spring and summer of 2010, buoyed by government incentives which have now run out. Buyers don't want to purchase a home and see its value drop immediately after taking possession, so many will wait until they see prices stabilize again.

More Information:

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