US Housing Market To Stay Depressed For The Next Few Years
Wednesday, March 02, 2022 11:30 AM

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The US housing market is still struggling to recover from the after effects of the housing bubble of 2008. During the period of 2005 and summer of 2006, the flourishing US housing market blocked suddenly and eventually crashed in 2008 and reached its bottom in 2009. 

The US government pumped in Money in to the economy, issued tax credits for home owners, and also offered to take over the subprime mortgages under its Federal Housing Administration (FDA) to guarantee mortgages with low down payments to families of modest means. All these measures have helped the economy to recover. However, the housing market is still not getting back on its feet. When President Obama, unveiled the Home Affordable Modification Program (HAMP) in March 2009, the hope was to modify 3m-4m mortgages by subsidizing payment reductions through the Troubled Asset Relief Program (TARP), a bail-out fund. But by the end of last year, only 522,000 loans had been permanently modified. Of the $50 billion originally allocated to the program, just $1 billion had been spent, according to Neil Barofsky, the TARP’s watchdog.

According to the most recent quarterly survey carried by Zillow, the percentage of US homes “Underwater” - whose market value is lower than what is owed on them, rose to 27 percent in the quarter ended January 2011, from 20 percent in August 2010. According to Karl Case (S&P/ Case Shiller),  there are around 12 million homes underwater in US. The rising underwater homes could very well drag the economy, if the prices of homes keep going lower.

The current economic data on the housing industry suggests that the recovery of the housing market will be very slow and it could also be a bumpy ride for the players in the market. The commerce department report showed a dip of 12.6 percent in new home sales in January to a seasonally adjusted 284,000 unit annual rate, compared to 325,000 units pace in December. The sales were down 18.9 percent, compared to January 2010. The rise in December was due to increased sales in California as buyers rushed to take advantage of the tax credit for new home. A rise in the foreclosed houses in the market is putting pressure on the new home sales, forcing builders to scale back construction.

In another report, The National Association of Realtors Pending Home Sales Index showed that contracts of pending sales of previously owned homes fell 2.8 percent to 88.9 from a downwardly revised figure of 91.5 in December. The decline was worse-than-expected for January, led to the slowest pace in three months. According to NAR chief economist Lawrence Yun, “We should not expect the recovery to be in a straight upward path - it will zigzag at times.” 

The effect of the downward housing market was clearly seen on new home construction groups. One such builder KB Homes, saw its stock prices plummeting form $69 in 2006, to the current prices of $13.25. This has forced the construction groups to change their strategy from building high end, less environmental friendly homes to energy efficient and environmental friendly homes for the customers. KB Homes has started a new program known as “EPG” (Energy Performance Guide) to help the customers to save as much as $100 per month. While Lennar Corporation has also started similar product with new homes to attract customers and is called “Powersmart.”

After analyzing the housing market, I suggest that the government should not regulate the housing market; rather it should open a derivatives market for housing, where the professionals will come in to repair the tendency of continuous rise or continuous decline of the housing prices. 

 

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