The Housing Bottom We've Reached Is Quicksand

Recession over? Recovery on the way? Housing on its way back up? Don’t prepare for the boom just yet. While the talking heads—they’re called that for a reason—are focusing upon a few bits of positive economic news, the economy still continues its slump.

 

I think it’s important that we be aware of our economic reality rather than to ignore the facts, focusing upon “rosy” news reports and wishful scenarios that may never come to pass. Awareness of the reality is fundamental to making rational and prudent business decisions. I want the facts, and will create my goals based upon what I KNOW to be true.

 

Here are a few of the reports and the facts behind them:

The jobless numbers have slowed their rate of increase. While the unemployment number isn’t climbing as fast as it was, according to Atlanta Fed Chairman, Dennis Lockhart, we now have 16% unemployment, when you count those who are no longer drawing benefits as well as the underemployed. And a number that no one reports is the huge number of self-employed who are either out of work altogether or who have experienced dramatic reductions in income.

 

Millions of the unemployed and underemployed cannot make their mortgage payments. They are not in the market for new homes, cars, or other consumer items. The loss of spending power from this group is in the hundreds of billions of dollars. Many of the jobs lost in manufacturing will never return, according to experts. And with the government and others predicting unemployment to remain high throughout next year, any recovery will be slow and painful.

 

Home prices have risen in many areas around the country. Yes, but in others prices continue to fall; with some areas having experienced price declines of as much as 50%. Nationally, home prices are projected to decline by 13% in the current quarter; and no one is predicting a return to pre-recession prices for many years, perhaps decades. With approximately 25% of homes with mortgages now worth less than their mortgage balance, a problem that has been projected to affect one-half of all mortgaged homes within the next two years, mounting foreclosures will continue to keep home prices depressed.

 

New home sales in July experienced the largest increase in 4 years. Here again, the positive news is overshadowed by the reality of where we’ve been. New home sales dropped off a cliff last year, and have remain sluggish in most areas around the country. Don’t forget that this has been the worst housing market since the Great Depression, so even slight improvements seem dramatic.

 

Sales of existing homes rose in July to the highest rate in 2 years. Dramatic reductions in prices, coupled with the new home buyer tax credit, accounted for much of the increase; and for those who want or need a home, there have been great bargains available. Buyers have been attracted by opportunities to purchase $500,000 homes at half price; and such deals abound in many parts of the country. But, experts have expressed concern that the end of the tax credit may signal a corresponding drop in sales.

 

Even if the numbers reflect that the recession has ended, statistics mean nothing to those who are out of work or are facing foreclosure. The number of consumers continuing to struggle is the truly important number. Until the employment numbers show significant signs of improvement and until we can stop the rising tide of foreclosures, the housing bottom we’ve reached will provide no more stability than quicksand.

 

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