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Five Theories on Why the Housing Market is Still Falling

This is from AOL News Opinion Round-Up and not one of them mentions my favorite theory, which is – the big huge bulge of baby boomers is now retiring and downsizing, there is a glut of housing on the market because there is not the same market for houses that existed when this big bulge of population was mating and bearing children. I think the ‘problem’ is greatly a natural phenomena related to the demographics. Experts disagree. 🙂

Why Is the Housing Market Plummeting? 5 Theories

Max Fisher
The Atlantic Wire
(Aug. 24) — Sales of existing homes dropped 27.2 percent in July, accelerating the recent decline in the already frail housing market. This brings the number of existing houses sold to an annual rate of only 3.83 million units, the lowest figure since 1999. The number of single-family home sales hit its lowest level since 1995. Some economists even fear that this signals the end of housing as an investment. How bad is this and what does it mean?

The Role of Expiring Tax Credits: Dow Jones Newswires’ Meena Thiruvengadam and Sarah Lynch explain, “The steep decline in sales in July reflects both a souring in the U.S. economic recovery and the expiration of a government tax credit program that has been supporting the housing market for more than a year. The tax credits offered certain buyers up to $8,000 to sign a contract by April 30. Deals originally needed to close by June 30, but lawmakers pushed that deadline to Sept. 30. Still, the tax credit’s expiration drove pending home sales down 30 percent in May and caused a double-digit dive in mortgage application volumes even as interest rates hovered near their lowest levels in generations. July’s existing home sales data reflects the May plunge in pending sales, which typically become existing sales within a couple of months.”

Tax Credits Caused ‘Collapse’: The Atlantic’s Megan McArdle writes of the homebuyer tax credits, “This housing collapse is the aftermath of that mania. The depth of the collapse suggests that in fact, the housing tax credit was not generating new demand as much as moving demand forward a few months. That means that we’re going to have to work out the aftermath in months of low home sales. … This only reinforces my belief that housing is no longer a good way to generate wealth. The government can’t fix this market, which needs to find a new, lower level. It can only very temporarily distort it.”

Market Fears Double-Dip Housing Recession: The Los Angeles Times’ Alejandro Lazo reports, “The big drop, which was worse than what many analysts had expected, sent stock markets tumbling Tuesday morning as investors feared a double dip in housing. The blue-chip Dow Jones industrial average fell more than 1%, as did the S&P 500, a broader measure of stocks. … The July plunge was the third consecutive monthly decline following the April 30 expiration of the tax credit, which offered up to $8,000 for certain buyers.”

Ballooning Supply Worsens Problem: The Atlantic’s Daniel Indiviglio explains, “This is the second highest inventory in a year. The number of months it would take to sell the current supply of homes also swelled in July to 12.5, which was a huge jump compared to June’s rate of 8.9. It’s also nearly double November’s rate of 6.5. Given the low rate of sales this summer and consistently high foreclosure rate, inventory will likely continue to grow. This is a really, really bad report. The awfulness of July’s sales were a little exaggerated due to all of the demand having been pulled forward form the buyer credit. But it’s unclear how many months of demand were captured early by the credit, so it’s hard to know when its effect will wear off.”

Entire Housing Market Is Stalled: Reuters’ Felix Salmon warns this report “means that despite record-low mortgage rates, people aren’t able to buy houses: essentially all the benefit from those low rates is going to people who already own their homes and are taking the opportunity to refinance. The news also means that there’s a big gap between buyers and sellers: the market isn’t clearing. Sellers are convinced that their homes are worth lots of money, or will rise in price if they just hold out a bit longer; buyers are happily renting, waiting for prices to come down. And entrepreneurial types, whom one would expect to arbitrage the two by buying houses with super-cheap mortgages and renting them out at a profit, don’t seem to have found those opportunities yet. Houses are rarely a liquid asset; they were, briefly, during the housing boom, but now they’re more illiquid than ever.”

August 26, 2010 - Posted by | Family Issues, Financial Issues, Interconnected, Living Conditions

1 Comment »

  1. All of these have contributed, there is also the fact that most new jobs don’t pay as much. What I used to make was about $28,000 per year, I’m now making about $17,000 per year. From what I’ve been reading this is quite often the case.

    Comment by Brian Bigelow | August 26, 2010 | Reply

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