When Will the Housing Market Finally Hit the Bottom?

October 29, 2007 by

The housing market is just getting worse. Home resales tumbled 8% in September to the lowest levels in this decade, prompting the obvious question: When will it all end?

The honest answer is no one knows. Optimists have been saying for more than a year that the worst is behind us, while the pessimists have been saying recovery is still a year, or years, away.

So far, the pessimists have been right about the weakness in the housing market, but their forecast that the collapse in housing would lead to a general economic malaise has, at least so far, failed to pan out. The economy has slowed, but has not fallen into recession, as consumers and investors adjust to a world in which home prices don’t automatically rise 5% or 10% a year.

The only thing that’s clear now is that the housing market has gotten worse since the spring. The market was in a free fall in September. Sales of existing home fell 8%, while inventories of unsold homes rose to a 10.5-month supply. It could take 320 days for a home to sell.

Sales of existing single-family homes are down 20% in the past year, the fastest decline in 16 years.

Median prices have dropped 4% in the past year, in part because fewer expensive homes are being sold, but also because the typical home is worth less than it was a year ago.

Homes are only worth what someone is willing to pay for them, and right now, most homes on the market have no buyer in sight. Prices may have to fall much more to bring supply and demand back into balance, economists say.

Builders have almost no confidence. The home builders’ index fell to a record low in October (the index dates back to 1985). New construction on single-family homes has plunged 31% in the past year, but still the inventory of new homes on the market, after adjusting for cancellations, is at the highest level since the early 1990s.

As if the fundamental sickness in the housing market weren’t enough, a secondary infection has developed. The credit crisis in the mortgage market that erupted in the summer has left huge numbers of potential buyers without any access to mortgages.

The subprime sector has essentially died, with the newly reinvigorated Federal Housing Administration able to replace only a tiny segment of what was once a huge market of home buyers.

The top end of the market was also frozen out, as jumbo loans (those with mortgages above the conforming level of $417,000) became more expensive or completely unavailable.

The jumbo freeze-out devastated sales in pricey areas such as the San Francisco Bay area, where jumbo loans had accounted for about 52% of purchases in August, but just 39% in September.

There’s some evidence that the jumbo market is slowly returning, but it’s not functioning normally yet.

So where does the market stand now?

“We are seeing the first buds of spring” in the recovery of the jumbo market, said Stephen Stanley, chief economist for RBS Greenwich Capital. “It’s a slow, glacial recovery.”

Stanley believes home sales will be “really bad” for two or three more months, before the credit markets begin to function more normally. “It won’t return to where we were six or 12 months ago.”

At that point, the secondary infection would be gone, but the underlying illness would still be there. The market will really begin to recover only after sellers capitulate on prices.

And then home sales might level out, Stanley said, acknowledging that he’s one of the more optimistic analysts.

Historically, housing corrections take a long time. After the market softened in the late 1980s, sales fell for five years, then took three more years to return to the peak level. Prices took just as long to recover.

Some analysts say the fundamentals will worsen in coming months. The main problem is that so many adjustable-rate mortgages will reset to a higher interest rate. The typical family with an ARM will see mortgage payments rise by $10,000 a year, according to Andrew Jakabovics of the Center for American Progress, a progressive Washington think tank.

Millions of these home owners will be unable to refinance their current loan and will either have to scrounge to make the payments, or lose their home through a fire sale or foreclosure. That would throw even more supply onto a saturated market.

“The mortgage crisis is neither wholly contained nor likely to abate in the near future,” said Jakabovics. “Default and foreclosure loom ever more menacingly as borrowers are unable to find a reasonable payment option and unable to sell their homes.”

Article Source

Popularity: 12% [?]



Related Posts


9 Responses to “When Will the Housing Market Finally Hit the Bottom?”

  1. The Property Pundit on October 30th, 2007 7:55 pm

    It will be interesting to watch. I think now is as good a time as any to make an offer if it’s a place you’re going to live in. If you’re an investor with a long-term investment horizon, or if you can find a house or building that cash-flows, then their’s no reason to sit on the sidelines now. It’s a good time to make a low-ball offer.

  2. Lake Forest Illinois Real Estate on October 31st, 2007 7:25 am

    Lake Forest Illinois Real Estate has been holding up very well. North Shore Illinois Real Estate generally holds up well in times like these.

    Today (October 31st) the Fed is expected to cut interest rates again. This will be a great news for the Real Estate market.

    Realtors need to be pro-active and getting ready for when the bottom does come. That means using this time to re-design and update your website as well as reaching out to your community and clients.

  3. Atlanta New Home on October 31st, 2007 4:41 pm

    There is no doubt sales are down, but I also think the doom and gloom is a bit exaggerated.

  4. Highland Park Illinois Real Estate on November 1st, 2007 5:33 am

    Highland Park Illinois Real Estate, much like Lake Forest Illinois Real Estate, is also holding up well.

    You may have read that foreclosures more than doubled year over year, but most of the foreclosures did not occur in the Illinois Real Estate Market

    As per my previous post, I mentioned that the Fed was meeting to discuss a rate cut. Well, good news for the Real Estate market and Real Estate Agents, the Fed cut .25 basis points across the board.

    It does appear that it may be the last cut for a while.

  5. West Hampstead Estate Agents on November 1st, 2007 3:49 pm

    It’s only just starting in Europe, where the overseas investment market is in Meltdown.

    Bulgaria has been touted as an “investment property hotspot” by UK property promoters. But new figures from investor.bg, reveal that apartment prices in Sunny Beach fell by 4 per cent in July alone. Similar slumps have been experienced in Ahtopol, Prmorsko and SvetiVlass, as a massive oversupply of tourist apartments remains unsold. Bulgarian ski resorts such as Bankso are suffering, with local reports suggesting that the 150 local estate agents have not sold a property there for four months. Yields on some holiday homes and residential developments have tumbled by nearly 40 per cent.

  6. Good Bye Good Buy | Redfin San Diego Sweet Digs on December 17th, 2007 7:28 pm

    [...] going on.  Being the consumate conservative that I am, I’m not quite ready to make any blanket predictions at this time but I do feel a mood change in the marketplace.  On the other hand, if I were to dip [...]

  7. North Reading Real Estate » Blog Archive » Buyers Rejoice… Sellers :( on February 27th, 2008 8:23 pm

    [...] gloomy (here is another article that confirms that gloominess) and add that to the fact that jumbo mortgage rates are still high [...]

  8. Staten Island Real Estate Agent on August 5th, 2009 5:23 am

    As nice as it would be too agree with the optimists on the subject of the housing market, it is tough too disagree with the Pessimists. The housing market took a turn for the worst and is still heading in that direction.

  9. Real Estate Investor on July 9th, 2011 10:39 am

    How do you feel about the market today?

Got something to say?







Recent Posts


css.php