Housing Market Still Hosed
Two articles on the Yahoo news feed caught my eye.
Troubled Home Market Creates Generation of Renters
"My parents always told me, `You need to buy a place; you need to buy property,'" he says. "But the housing market is insane."
Many younger Americans see owning as risky. It hardly seems the best way to build wealth, especially when prices are falling.
Here we see the other side of the bubble. On the upside, everyone under the sun wanted to buy. They were in a panic because if they didn't buy RIGHT NOW (in 2006) they would never be able to afford a home.
Now that house prices have crashed, leaving a wake of financial devastation across the country, the shiny house in the suburbs has lost its appeal. In the end, a house is just a place to live, not a serious strategy for getting rich (unless you want to be a professional landlord).
What is the result?
Ahead of the Bell: New Home Sales
Sales of new homes are expected to have risen to a seasonally adjusted annual rate of 303,000 last month, according to a consensus forecast of economists surveyed by FactSet. That would be up slightly from 300,000 in March. Yet the pace remains far below the 700,000 new homes a year that economists say would represent a healthy rate.
Last year, Americans bought 323,000 new homes. That was the fewest annual total on records going back 47 years and 14 percent fewer than the number sold in 2009.
It was also the fifth straight year that new-home sales declined after hitting record highs in the previous five years, when the housing market was booming. Economists say it will take years before sales return to pre-housing boom levels.
Diminished sales have driven down the median price of a new home to about $213,800 -- about the same as in 2004.
During the boom, we were building nearly 2 million houses per year. Construction has fallen by more than 80% since the peak. Still, there will be 1.2 million foreclosures this year, and banks are still holding 870,000 already foreclosed properties: http://www.nytimes.com/2011/05/23/business/economy/23glut.html?_r=1
Given the above, I think the right question to ask is: How long will it take for the economy to absorb the excess inventory? Could be enlightening.
One more thing: Before you take this as pessimistic, I would say that the resilience of the economy in face of the above statistics is actually pretty impressive. I would also note that GDP is measured year over year and housing would only need to return to rather pedestrian contstruction figures of 450,000 units or so to be a significant growth driver for the economy.
Population is growing. Eventually this all works out.