Housing Market Improves, but Growth Years Away
Prices are stabilizing, but not going up
The economic crisis that began in 2007 was the direct result of a crash in the housing market. Banks approved home loans for unqualified borrowers. When these borrowers were unable to keep up payments, the banks lost billions, leading the U.S. economy and financial system to the brink of collapse.
There is optimism that the worst of the financial crisis is in the past. Employment numbers are improving, stocks are gaining ground, and American consumers are beginning to feel more optimistic about the future. Many economists predict 2012 will be the year the economy turns around and permanently ends the Great Recession.
But does the closing chapter of the Great Recession also signal an end to the housing slump? Since the housing bubble burst, homeowners have seen the value of their house depreciate at record levels. Potential buyers find it hard to secure a home loan. For many, owning a home, once a stalwart of the American economy and a key asset in building wealth, lost its allure.
According to housing experts, a number of factors this year have the potential to turn the housing market around and help it to find its bottom. But even if this does occur and housing prices stabilize, these experts warn that it could be years before housing prices start to rise again.
Obama's plan helpful, but not a cure-all.
President Barack Obama recently unveiled a plan that would allow homeowners who have been paying their mortgage on time to refinance loans owned by Fannie Mae, Freddie Mac, the Federal Housing Administration, or a private bank in an effort to reduce monthly payments. He also proposed to allow Fannie and Freddie to sell foreclosed homes to individuals or businesses that plan to rent them out.
"The president's plan regarding the refinancing of underwater mortgages is a great idea," says Lawrence Yun, chief economist at the National Association for Realtors. "Giving them low rates should not be controversial. The homeowner position would be much healthier and it provides an opportunity to build up equity faster."
Obama's plan also addresses the problem created by mass foreclosures over the last five years. Until this backlog of homes is cleared, housing prices will remain depressed as buyers can get a home at a bargain-basement price. Because of this, there is little demand for new homes and few are being built. Allowing businesses and real estate investors to purchase and rent the problems helps to lessen supply of old, cheap homes.
"It's going to be the same case until you deal with the foreclosure problem," says David Min, associate director for financial markets policy at the Center for American Progress. "If you're trying to sell a house, you need to have more buyers and no flood of inventory."
The primary problem with Obama's plan, however, is political.
Republicans have already vowed to oppose it, making its chances for passage slim.
Other signs point positive, but long-term recovery elusive.Even if the plan doesn't pass, there are signs that the housing market could be on the mend. According to Stan Humphries, chief economist at Zillow Real Estate Research, 2012 will be a "transitional year" buoyed by positive economic trends that will push the housing market closer to its bottom.
"The real reason for the rebound is market fundamentals. It's going to be a very strong year for new and existing home sales, but also housing starts. The decent growth of the broader economy and progress in terms of job growth is also a positive. We think we're going to stay well above [adding] 100,000 jobs each month. It will make people feel better about the economy."
He says this would also make it easier for consumers to get a home loan. "Lending standards will ease a bit in 2012 because lenders are responsive to what the broader economy is doing, as well as what's happening with home values," he says.
But Humphries, who characterized his view toward the housing market as "cautiously optimistic," warned that even if the housing market does bottom out in 2012, prices are likely to stay relatively flat for two to four years to come.
"Once we hit bottom it will be a long rocky affair, lasting two to four years," he says. "Price appreciation will be fairly tepid. I don't expect to get back to a normal market for a few years. We're approaching a bottom but the bottom could last a long time."
Min at the Center for American Progress also warns that the dramatic price appreciation that occurred before the bubble burst is not coming back.
"The housing finance system is in a generational change. You'll never go back to the double-digit annual appreciations," he says. "But it's not unthinkable that we can go back to the 80s and 90s when housing was a good, solid investment. We can return to that, and that's the goal of a lot of the policymakers."
- Tensions in Middle East Fan Fears of Sharp Gas Price Hikes
- Inflation Outpacing Compensation for U.S. Workers
- The Myth of Economic Inequality
- Occupy Wall Street Must Learn That We Are What We Buy
- Six Unusual Economic Indicators
- Housing Market Improves, but Growth Years Away
- Could Strong Chinese Currency Boost U.S. Economy?
- The Downward Mobility of the American Middle Class
- Unemployment: Fudging the Numbers
- Why the Fed is Lukewarm on the Economic Recovery
- Are Student Loans the Next Debt Bomb?
- One Key Sector That's Still Shedding Jobs
- Globalizing Private Sector, Government Overwhelmed by Corporate Money
Americans Spent Less:
Why That's a Good Thing
- Improving Economy Driving Independents Back to Obama
- Europe Needs a Marshall Plan
- Are We Entering a Jobless Recovery?
- GDP Growth Fastest Since Early 2010
- Good News and Bad News about GDP Growth
- Over-Saving Caused the Economic Crisis
- To Spur Economy, United States Must Reform Legal Immigration
- Immobility Nation
- United States 'Saudi Arabia of Natural Gas'
- Will Gas Prices Grow to $5 a Gallon?
- Fed Opens Up on Interest Rate, Inflation Predictions
- Obama to Save Economy With More Tourist Visas?
- Will Obama's Mortgage Refinance Plan Be D.O.A.?
- Top 5 Global Risks for 2012
- Lower Inflation Gives The Fed More Leeway in 2012
- What's in Store for Jobs in 2012?
- Our Challenge for 2012: Get Americans Working
- The Rebirth of Social Darwinism
- H-1B Workers in a State of Indentured Servitude
- Abuse of the H-1B Visa Program Is Widespread
- H-1B Visas a Symptom of Special-Interest Influence
- More Green Cards, Not H-1B Visas, Is the Real Fix
- We Are Creating a Dependency on H-1B Workers
- Unfilled Positions Reduce Productivity
- H-1Bs Are Simply Too Difficult to Get
- Most Immigrants Create Jobs
- White House Reiterates Urgency to Renew Payroll Tax Cut Bill
- Homegrown Obstacles to the Economic Recovery
- Does Extending Jobless Benefits Help the Economy?
- Men Continue To Fare Badly in This Economy
- Public Blames Congress, Not Obama, For Sour Economy
- Restore the Basic Bargain
- A Main Street Jobs Agenda
- Who Says Wall Street Isn't Hurting?
- Road Map to a Housing Rebound
- Housing Prices Drop Back to 2003 Levels
- GOP 2012 Candidates Split on Payroll Tax Cut
- We Need to Focus on the 99 Percent
- A More Permanent Solution Is Needed
- Keynesian Policies Have Failed
- Many Time-limited Tax Breaks Never Die
- A Strong Recovery Remains Elusive
- An Economic Loser in the Long Run
- Extending Payroll Tax Cut Will Extend U.S. Debt
- Jobs Report: A Glimmer of Hope for the Housing Market?
- Unemployment Rate Drops to 8.6 Percent
- Beige Book Shows Stronger Growth, but Europe a Major Threat
- What Happens If We End the Fed?
- Online Shopping Deals Hurt State Budgets
- 5 Reasons the Economy Will Be Better in 2012
Housing Market Improves, but Growth Years Away | Politics
Copyright © 2012 Tribune Media Services