The graph below shows the new housing starts trend since 1960. It clearly summarizes the ugly picture of the current housing market with the new constructions lags well below the average low from previous recessions. That means, this one is pretty hard and deep enough to take more than ever.
Above graph was published in last week Businessweek along with an article which analyzed outlook from different people like HUD secretary and other analyst. The article unravelled the actual horror surrounding the housing market and why public and government perspective of housing rebound in 2012 is not going to be practical expectation.
As per the analyst, it will take more than couple of years for the Housing market to get back on its feet to show some positive uptrend signs. Here is few important statement from the article which makes sense.
“Doug Ramsey of Minneapolis investment firm Leuthold Group is a student of asset bubbles, from tech stocks in the late ’90s to commodities in the late ’70s and railroads in the 19th century. Ramsey calculates that single-family housing starts would have to soar an unprecedented 60 percent to 70 percent from their current half-century low of a 419,000 annual rate just to hit the average low of the past six housing busts since 1960 (650,000 to 700,000).
Ramsey says every housing statistic he tracks, including new and existing home prices and the performance of homebuilding stocks, has so far matched the pattern of prices after the bursting of other bubbles, including the Dow Jones industrial average following the crash of 1929 and Japan’s Nikkei after its 1989 peak. It starts with a steep decline lasting three or four years, followed by a brief rally that ends in years of stagnation. The Dow took 35 years to return to pre-crash levels. The Nikkei trades at less than a third of where it peaked 22 years ago. “The housing decline,” he says, “will be a long, multiyear process, and the multiplier effect across the economy will be enormous.”
“Another anlayst comments, With the homeownership rate possibly headed to its pre-bubble level of 64 percent from 69 percent at the peak, analyst calculates that the nation needs 1.6 million fewer homes that it now has. The supply of total housing stock is beyond what is necessary.”
“Another analyst who deals with Bonds related to Housing index mentions – American homeowners have equity (market value minus mortgage debt) equal to 38 percent of their homes’ worth, down a third since 2005 and half what it was in 1950. A lot of the decline is attributable to people who have negative equity—they owe more on their mortgages than their homes are worth. Affordability index, which measures the ability of a family with the median national income to buy a median-price home at current mortgage rates. The index is near an all-time high and double its level in 2006 at the peak of the bubble—meaning buyers should find many more homes within their budgets. A rise in affordability should have spurred purchases, boosting prices and keeping a lid on the index. But thats not the case, instead it means the credit is not available to most people. Houses aren’t cheap if you can’t get the loan.”
Businessweek’s Bottomline – Despite intermittent signs of recovery, the housing market may be in the midst of a slump that could last a generation.
As per recent report from RealtyTrac, Foreclosure activity fell year-over-year for the ninth straight month in June, though it rose nearly 4 percent month-to-month. For the second quarter as a whole, filings fell nearly 11 percent compared to the first quarter and 32 percent compared to the second quarter of 2010, to a total of 608,235 properties. That’s the lowest quarterly total since fourth-quarter 2007, the report said.
That low is not from an improving housing market or economy, however, said James J. Saccacio, RealtyTrac’s CEO, in a statement.
“Processing and procedural delays are pushing foreclosures further and further out — we estimate that as many as 1 million foreclosure actions that should have taken place in 2011 will now happen in 2012, or perhaps even later,” he said. “This casts an ominous shadow over the housing market, where recovery is unlikely to happen until the current and forthcoming inventory of distressed properties can be whittled down to a manageable number.”
These report might have brought some deep worries among Americans and others who are associated with the Housing industry like Builders, Developers, Realtors and so forth. We all been looking for light at the end of tunnel for the past 5 years and but looks like it’s going to take few more years. I think we all just need to work together diligently and effectively to get through this slump with more patience than ever since it is going to take some time to see the gloomy days. As a Realtor, I need to be aware of this situation and set my goals properly and also educate my customers/clients accordingly to make their decision in a right way
About Vijaianand Thirnageswaram
I am a Proud Realtor of Texas, trying to guide and help clients to find their dream home and educate them to buy them for right price. I am also a Candidate for CFP who has more financial knowledge which allows me share and educate clients in any financial decision making process.
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