Think housing is recovering? Think again.
The article, Think housing is recovering? Think again, from CNNMoney.com, reports that in spite of drumbeat of rosy economic news signaling the possibility that the economy and housing market may be on the mend, prospective home buyers, particularly those tempted to think of real estate as an investment again, should tread with caution. One critical obstacle to a housing recovery remains intact: supply. Until the number of empty homes starts to shrink, prices could still fall further. Moreover, notes Joseph Foudy, a professor of economics and management at NYU's Stern School of Business, we're coming off of an artificial bump from the first time home buyer credit, which expired last month. He predicts the second half of this year will see sluggish economic growth and that housing prices, at best, will be flat for the next few months, while commercial real estate "is likely to see significant declines." Optimists are pinning their hopes on a continuation of low mortgage rates. They note that rates could remain low because of concerns that debt problems in Europe portend a wider slowdown. Low rates help to reinforce demand. But even if these optimists are right, low rates only have so much of an effect. Despite the average 30-year rates now hovering around 4.8%, the Mortgage Bankers Association noted last week <http://www.reuters.com/article/idUSN1922536920100519?type=marketsNews> that the number of people seeking mortgage purchase applications had dropped more than 27%, reaching a level last seen in May 1997. LPS Applied Analytics has estimated <http://blogs.wsj.com/economics/2010/04/24/number-of-the-week-103-months-to-clear-housing-inventory/> that banks currently have about 1.1 million foreclosed homes in their inventory and that another 4.8 million mortgages are likely to end in foreclosure. At some point these homes will go on the market, further depressing prices. But they won't be alone. Regular sellers have been coming out of the woodwork. NAR reported that the number of previously-owned homes placed on the market has risen quickly (reaching more than 4 million now) and that this inventory continues to far outpace the number whittled away through sales. The additional inventory is not a "healthy" development, said their chief economist, Lawrence Yun. And it's just going to get worse. As analysts at Zillow noted last week <http://zillow.mediaroom.com/file.php/1165/HCS+PPT+Q12010.pdf> , U.S. homeowners are so confident in the value of their homes that many of them plan to put up for-sale signs in their front yards. Zillow said that 7% of homeowners they polled were "very likely" to try to sell their homes in the next twelve months if the housing market seemed to be improving. If 7% of all homeowners hit the market, that would equal about 5.3 million homes, more than the number of existing homes that sold all of last year. That's a lot of housing. Buyer beware.
Here is a link to the article,
http://money.cnn.com/2010/05/25/news/economy/housing_recovery_slows.fortune/index.htm <http://money.cnn.com/2010/05/25/news/economy/housing_recovery_slows.fortune/index.htm>
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