There’s been lots of discussion about the crisis in the Japanese economy and how it continues to struggle after ten years of no improvement, and many wonder if the U.S. may experience a similar fate; but the real question for American consumers is: Will housing experience a lost decade? While the answer is somewhat dependent upon geography, there are lots of reasons to believe the answer may be yes.
It has been estimated that homeowners have lost about $12 trillion in net worth—much of the loss resulting from declining home prices. That loss translates to difficulty for sellers, making it impossible for many to move up or relocate. With as much as 25% of mortgaged homes worth less than the amount owed, and with hundreds of thousands of others worth no more than the combined mortgage, sales commission, and closing costs for a new home purchase, millions of owners have become reluctant renters. The deed may show them as owner, but in reality, there is little chance of ultimate ownership. They can’t sell, and if they walk away they’ll ruin their near term chances for a mortgage; and having lost their equity, they’ll need several years to regain the resources necessary to purchase.
And while the “experts” point to a housing bottom and the beginning signs of recovery, it’s an impossible dream. Sure, there are areas that have rebounded, areas experiencing a shortage of inventory, but they’re not representative of the overall housing market. With the failure of the government’s efforts towards loan modification, millions of additional foreclosures loom on the horizon, depressing home prices and inhibiting sales.
Will housing experience a lost decade? Those expecting a return of robust home sales will certainly think so. Continued high unemployment, reduced consumer spending, tightened mortgage requirements, waves of foreclosures, incredible government debt, the potential for higher interest rates, high oil prices, the glut of rental units and ensuing low rents, and bank’s reluctance to lend will all combine to reverse the upward trend in home sales experienced in recent decades. In the coming years, the task of those in real estate related businesses will be to develop strategies to compete for a share of the smaller housing market.
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