John Boehner was recently quoted as being “skeptical” that there is “anything government can do” to bring about a recovery in housing; but will the housing market ever return? The media love such comments as Speaker Boehner’s, and readily plaster them across TV screens and front pages; however, the answer is much more complicated than can be described in headlines. In an effort to simplify complicated subjects and to appeal to the largest audience, news reports often paint a somewhat distorted picture of what’s actually occurring. Here are some hard facts about housing:
The downward spiral of home prices. The latest Case-Shiller report indicates that housing is now officially in a double-dip, something most homeowners and sellers have felt for some time, with prices falling harder than the 1928-1933 Great Depression collapse. While the CS report only provides a belated view of a few cities, the overall picture remains glum. A subsequent report from CoreLogic, utilizing a different methodology, indicated that home prices actually increased by “0.7% between March and April, 2011, the first such increase since the home-buyer tax credit expired in mid-2010. However, national home prices, including distressed sales, declined by 7.5 percent in April 2011 compared to April 2010. . .”
Regardless of how the numbers are calculated, housing is far from where we would like for it to be; and when compared to the past decade, it’s easy to see that the market is in serious trouble. It seems unlikely that there is anything the government can or should do to restore housing to the exploding prices and rapid appreciation experienced between 2000 and 2006. Those times are probably gone forever—and that’s what millions of homeowners, builders and real estate agents lament. We all enjoyed the benefits of the housing boom—accumulating wealth through real estate faster than most other investments—and though ignored by most, the eventual collapse was inevitable.
Declining homeownership rates. During the past decade the rate of home ownership climbed above “normal” levels. Fueled by easy money and constantly rising prices, millions of renters were lured into buying a home. While ownership rates had been relatively stable in the mid 60% range from the 1960s into the 1990s, the rate spiked upward, approaching 70% by 2005. Many of those buyers were only loosely committed to owning and now realize that they should have remained renters. Declining ownership shows us retreating back to more traditional levels. However, the removal of those who were enticed into the market by easy money, profit potential or the encouragement of well-meaning friends or relatives has left the U.S. with a glut of unoccupied homes and a shrunken pool of buyers.
Loss of net worth/perceived net worth. Both perceived and actual loss of net worth has many owners who would otherwise be looking to upgrade or downsize remaining in their homes for years beyond what they would have in a more normal housing market. Some of the potential buyers, especially those nearing or in retirement, are probably out of the market forever. Additionally, the loss of net worth has consumers exercising more caution in their spending, a factor which indirectly impacts home sales.
Jobs, Jobs, Jobs. Regardless of the efforts of government to “stabilize” the housing market, it’s impossible to return to a robust housing market without millions of new jobs. In almost every past recession, new home construction and sales were a significant contributor to jobs creation, boosting the economy and energizing home sales. Unfortunately, that wasn’t the case this time, and until the economy recovers sufficiently where it is consistently adding about 300,000 jobs per month, housing will continue its lackluster performance. And, given the current economic environment and the extreme partisanship of both major political parties, the prospect of enacting workable solutions to unemployment seems unlikely in the near-term.
Will the housing market ever return? Is the concept of homeownership dying? Absolutely not! Homeownership is what it has always been—a great place to develop roots, to raise a family and to create a personalized environment. The stability of homeownership is one factor considered by both creditors and potential employers. Other factors of ownership such as security, increased storage space and community involvement continue to appeal to large numbers of consumers.
However, what is changing and, in fact, must change is the way ownership is perceived. For many, the values of homeownership remain the same; and while owning a home may not prove to be of great financial advantage—in most areas it was never a way to quick wealth—the benefits haven’t changed.
The housing boom distorted the view of homeownership for many; and for some, the prospect of a “quick buck” was the motivating force for their purchase. However, most of those “investments” have withered to nothing, leaving that view of homeownership dying, but such a view deserves its demise.
Will the housing market ever return? Yes, but those who are expect to return of the boom times of the past decade must relinquish such hope. It’s neither in the cards nor the prognostications of experts. And those who think that stabilizing or improving the mortgage market will suddenly restore the market are ignoring the facts. The housing market will stabilize and once again begin to grow, but significant growth cannot occur until we see consistent growth in the jobs market. But even then, the heady days of 2005 will be only a memory. Homeownership isn’t dead, it’s just being guided through a past-life regression; it’s returning to its roots, the respected purpose that was almost forgotten.
For more information on the housing market see:
The Best of Times or Worst of Times to Buy a Home?
In Many Cities it’s Cheaper to Buy than Rent
Jobs Growth and a Housing Market Recovery Still Years Away
Should Anyone Buy a Home in Today’s Market?
The Housing Guru: The expert source for all your housing questions—now featuring daily updates of Today’s Housing News
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