It seems as though the bad news for the economy and the housing market in particular just keeps coming. Mortgage rates are lower than they have been since the 1950s but the economy is still at a standstill. Consumer confidence is crumbling, and homeownership is at the lowest point in a decade.
Now we learn that the housing supply is still growing. This is not exactly news, as this has been predicted for months as foreclosures remain high and more and more REO property makes its way to the market. According to the cited article, 4.56 million mortgage loans were in default or foreclosure in June, and the number of new foreclosures started by Fannie Mae and Freddie Mac increased 21 percent from May to June.
Some of the growing number of foreclosures can be attributed to the outright failure of initiatives like the Home Affordable Modification Program (HAMP) and the rising number of strategic defaults that largely arise from lost equity.
Despite this, we are seeing additional new homes constructed by builders who purchased land in anticipation of a housing rebound. When the rebound failed to manifest itself, builders decided to build and sell homes close to cost in order to get rid of the land. Shockingly, new home construction is up over 60 percent in bubble areas like southern Florida, Las Vegas, and Denver.
According to the excellent Calculated Risk Blog, we currently have an 8.9 month supply of homes on the market, and the number is going to grow. Normally we have 6 months of housing supply on the market. This does not include a lot of the shadow inventory that likely exists on banks’ asset sheets.
None of this bodes well for home values. While today’s S&P Case-Shiller House Price Index showed increases in most cities, that survey is a 3 month average with a 2 month lag, so it only really tells you what has happened, not what is or is going to happen.
What do you think will happen to the housing market over the next several months? Let us know in the comments section below.
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Tarek
August 2, 2010 @ 5:59 pm
I know many homeowners are dreading the downturn in house prices but it has to happen. Our country experienced an economic boom when the housing market was on fire. Unemployment was low because of the high demand for new construction. A wide range of business are influenced by new construction. All this happened because people were purchasing homes quite easily. The problem wasn’t that purchasing real estate was easy the problem was that purchases were made under false conditions. People bought houses that were beyond their means. The difficult bit about purchasing houses in the boom was finding a house that was within one’s purchasing power. Everything was extremely overpriced. I find it odd that many are hoping that real estate remains overpriced. Sure prices have come down since their 2006 high, but real estate is still beyond the reach of many hard working people. The only way our economy will pick up is if housing drops to a point where many can realistic consider purchasing a house. As long as house prices remain at realistically affordable levels there will be a demand for new construction and with construction new jobs, jobs that will spread and affect other industries. It’s a difficult path to recovery, but as long as houses remain beyond the reach of many, you will have construction and all the jobs related to it sitting and waiting. Something needs to happen with the housing market and it depends on affordability. We either all get massive raises or housing comes down to a level where the rest of us can afford to purchase a real estate. If the price of housing continues to go up then you can bet we aren’t going anywhere with the economic recovery and you’ll just see more people sitting out on owning a home.
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lawgrace
August 15, 2010 @ 3:32 am
CASE IN POINT: FORECLOSURE MILLS, JUDICIAL FRAUD, CONSUMER EXPLOITATION, GOVERNMENT SHAMS
“Media headlines are abuzz with what is going down with foreclosure mills in Florida, particularly foreclosure mill baron, Attorney David J. Stern. Unscrupulous foreclosures are more criminally exploitive than what becomes reported; it is not easy to detect nor prove. Even so, appalling collection abuses have resulted in . . .”
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