Housing Recovery Status Report

To many, April’s housing figures seem to indicate the housing market is firmly on the mend. With Americans purchasing new one-family homes at a monthly increase of 15 percent from the previous month and nearly 50 percent from April 2009, in addition to an overall sales increase of an unanticipated 7.6 percent from March, these numbers suggest the housing market is back. Why would anyone assume otherwise? After all, month-to-month figures illustrate that sales have now escalated to their highest point since November 2009.

Some housing analysts feel the need to rain on this parade however. As the U.S. economy continues to signal progression in the areas of job growth and improvement in the stock market, the belief is consumers will likely demonstrate their confidence by increasing their spending. But it is anticipated that such spending is unlikely to occur in the housing sector as a result of continued decline in housing prices.

The coming months will reveal that the now-expired first-time home buyer tax credit was not much more than an artificial boost to the housing market. As a result, it is anticipated that the number of empty homes will probably not decline through the end of the year. In fact, the economy as a whole will likely remain sluggish.

In addition to the federal tax credits designed to induce home buying, the historically low mortgage rates also compelled potential homeowners who had been fence sitters to delve into the world of home ownership sooner than they may have originally planned. Sustained through the harshest point of the economic crisis, the housing market may take another dip sooner rather than later.

According to David Stevens, the Assistant Secretary for Housing at the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Commissioner, “This is a market purely on life support, sustained by the federal government … Having FHA do this much volume is a sign of a very sick system.” As the Federal Housing Administration (FHA) tightens its lending guidelines, even more home buyers could be eliminated from the prospect of home ownership.

If there is a silver lining, a glimmer of hope for continued housing sales exists because of the incredibly low mortgage rates. As a result of the economic crisis in Europe, mortgage rates in the United States may remain low for the foreseeable future. But with rates at or near historically low levels for more than a year already, it is not likely low rates will spur an additional demand.

Robert Hyder