Everywhere you turn in the media or the Government, there is someone telling us that the housing market and the economy is turning around. Are you sure? When you look inside the numbers at the truth, it all doesn’t seem to add up.
That is why when a friend of mine sent me this article from Yahoo Real Estate about the 6 reasons the housing market hasn’t turned around, I had write something about it to you good people and let you know what the truth looks more like.
If you want to ready the entire article you can, but I will summarize each point for you below. This will be interesting for everyone, but especially those that are looking to learn how to invest in real estate.
6 Reasons Housing Market Has Not Turned Around
1. Labor Market
The labor market has a huge impact on the housing market and it’s recovery. This is because steady incomes are what lead to solid credit scores and the purchases of homes and payments of mortgages. Without steady income from a job, then this is very difficult to pull off for most people. With the unemployment rate lingering at 9.5%, and truth be told it is much higher than that as many people are not even being counted in that figure anymore, it is making it difficult for the job market to stabilize and thus the housing market suffers as a result.
2. Household Formation
Yes, it’s truth, this is another byproduct of the weak labor market. As more and more people are unemployed it is leading to them moving in with friends and families to make ends meet. This is good for both parties as they try to find a way to work together in order to survive. Because these people are living together, there is not as much of a need for housing which is killing the opportunities for growth. New housing starts are down, vacancy in the rental market is down, and there doesn’t seem to be much sign for immediate optimism.
3. Foreclosures
I know this one is coming as a big surprise for you. The foreclosure market is still going strong and is devastating the housing recovery as a result.
Foreclosure filings were reported on nearly 1.7 million homes in the first six months of the year, an increase of eight percent over the same period a year earlier, according to RealtyTrac. “The midyear numbers put us on pace to exceed 3 million properties with foreclosure filings by the end of the year, and more than 1 million bank repossessions,” James Saccacio, the chief executive officer of RealtyTrac, said in a statement.
Think about those numbers. 1.7 million homes in the first six months, an 8% increase of the same period last year. Last year, people said the recovery was on and we had seen the worst of the foreclosure market, and the same period this year is 8% larger? Doesn’t sound like good news. And as you can already guess, there are many, many more to come. So if you think we are out of the woods in the foreclosure market, then you better keep on thinking cause that isn’t the case at all. We have much more to go and yes, I believe a good part of this is do to the labor market. People just cannot afford their mortgages when their income has been halved or reduced to nothing.
4. Tight Credit
The credit market is crazy tight right now. If you don’t have a plus 700 credit score and 10% down payment, then you can more than likely forget about being an homeowner. Let’s pretend people were able to take advantage of the 4.57%, 30 year mortgage rates that are out here now and at the lowest levels since the 1950′s, how in the world are they going to come up with the 10% down. On a $200,000 home, that is $20,000, and the reality is most people don’t have that type of cash lying around. It is the just the truth of the matter and facts that we live in. You can’t fault the banks for tightening lending requirements as they are taking blow after blow on these foreclosures. But hold on to your hats and glasses cause this will be the state of affairs for some time to come.
5. Falling Home Prices
The fact that home prices have fallen so much since their 2006 highs and seem to be continue to fall, has really kept would be buyers out of the market. And I cannot fault them. This is definitely a buyers market and as interest rates continue to fall and and home values continue to fall, they should wait as long as they possibly can. But this atmosphere has really changed their thinking and most of them are afraid to get into a home and have the equity sucked right out of their 10% down payment and be washed down the drain.
6. Selling Your Other Home
If you want to buy another home and move up the ladder, you will need to first sell you current home. And as we have been discussing, homes are not selling. Not to mention, that with one in four homeowners owing more than their home is worth, it makes it even more difficult to sell your home. The homeowner will have to eat the difference and take a loss, which most of them don’t want to do considering they need to put down anywhere from 10% to 20% down payment depending on the size of the home. It’s not a good time.
Bottom Line in the Housing Market
THE HOUSING RECOVERY HAS NOT STARTED YET. We are still in a downward cycle which many experts say that we should lose another 8% in home values by the first quarter of next year. At that point, we should see the bottom of the market and a recovery can take place. I am a little more skeptical than that because if the labor market doesn’t recover and all those people that are not even being considered in the unemployment numbers don’t get some relief soon, then it might be more bad times ahead.
But what do you think? Will the market recover sooner or later?
I don’t know why someone hasn’t written about this sooner!