Housing Market -- The Light at the End of the Tunnel
Friday July 18, 2008
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- May housing inventories fell to 4.5 million, a 10-month supply. Although that's a very high level, it is better than the previous month.
- Home prices actually rose in 8 of 20 markets surveyed.
- Less than 1 million new homes were started, down dramatically from a peak of over 2 million in January 2006. This has happened only three times in the last 35 years, and each time housing rebounded by the next quarter, catching everyone by surprise.
In addition, foreclosure rates continue to slow. In June, slightly more than 250,000 homes went into foreclosure - a huge number, but 3% less than the month before. (Source: Barron's, Bottom's Up: This Real Estate Rout May be Shortlived, July 14, 2008; RealtyTrac, Foreclosure Activity Decreases 3% in June, July 10, 2008)
What It Means to You
Price declines will probably come nowhere near the 24% decline experienced during the Great Depression of 1929. However, real estate contributes 10% to the economy, which has put downward pressure on GDP and employment.Watch for the Advance GDP Report, due July 31st, to see if the economy is in further danger of a "technical" recession. The housing decline has already caused a significant stock market correction, with most experts agreeing we are in a bear market.
More on Real Estate and the Economy
- How Does Real Estate Affect the U.S. Economy?
- Definitions of Commonly Used Real Estate Terms
- A Primer on Interest Rates
- Selling in a Falling Market
- Avoid Mistakes When Selling in a Slow Market
- When Is the Time Right to Reduce Price?
Comments
Kim,
I use the analogy that “if you put your head in a furnace and feet in the freezer, on an average you are okay”. Having been in the market for a house in Los Angeles (Rancho, Ontario) area about 6 months ago, presently living in Pennsylvania and having interacted with close friends in Las Vegas invested in significant real estate there, I can promise you, Las Vegas and LA were the “furnace”. It was not “if” there would be a housing meltdown but “when”.
This situation and hence the extrapolation is not clearly articulated to average American who does not invest time in understanding the situation. For those who receive information primarily from TV, the US economy is done.
Why isn’t the market mechanism kicking in to correct mis-information? I believe that there is a need in the market for “data mining” that brings key, relevant and processed data to an average person – well beyond the “search engines” that Google and Yahoo use.