Housing Market Recover

When Will The Housing Market Recover?

When will the housing market recover?

Don't believe the pundits who forecast a time frame of when the housing market will recover. The housing market will recover when and only when the following 3 things happen.

First, the existing inventory of foreclosed homes must be sold, not just to anyone, but to buyers who can keep them. The banks want foreclosed homes off their books as soon as possible and sell them at prices that reflect this mentality.

They don't care about the effect of such pricing on the local real estate market. As long as foreclosed homes keep being sold, the housing market cannot recover.

Second, there has to be a ramp up in the formation of new households. New households need new homes, which translates into higher demand for homes. How do we ramps up the formation of new households? This can come from ramped up birth rate, but that will take decades to have its impact. It can also come from higher immigration, but that is a double edged sword if the new immigrant households cannot find jobs with stable income and end up adding to the nation's unemployment rate.

As you can see, none of these three factors are likely to be easily or quickly fixed. Remember that the last time the housing market dropped in the early 90s after the S&L crisis, it took 3 years for the market to bottom out. Back then, only 5% of the mortgages were ARMs; today, 46% of the mortgages are ARMs.

Given the large and structural issues to be dealt with, we are likely to be in this for the foreseeable future. Prudent investment and bearable belt tightening are advised.

Now back to our question: are you sure there is no God? If not, take a tour through these photos.