US Housing Market Appears to be in Real Trouble
October 8, 2010
Today’s announcement by Bank Of America that they are suspending home foreclosures is likely the straw that broke the camels back of the real estate recovery in the U.S. The home foreclosure crisis could become an epidemic and the government and servicing lenders have shown no ability to create a meaningful solution. News that major national lenders would be forced to change their policies with regards to handling home foreclosures is likely only going to make the matter worse, creating a logjam of foreclosed and bank owned homes into 2011.
The current US housing market is the worst it has been since we began keeping records back in 1963. The biggest shock is that the worst might still be in the future. The recent government tax credit for first time buyers and others in the market for a home encouraged many people to purchase. With this now gone though, there may be nothing to keep the housing market from descending even further into trouble. This is not only worrying for those looking to sell homes; it is also likely to hugely affect the economy as a whole.
In May of 2010 the sales of new homes fell to the lowest point in history; around 300,000 instead of the average 800,000 a month. People just are not buying and there is no sign that this is going to change anytime soon. The Federal government had predicted a huge rush to buy property as people took the opportunity to benefit from the available tax credit before it expired; unfortunately this was nowhere near as effective as the government had hoped. There were increased purchases because of the incentive, but no enough to stop the downward spiral of the housing market.
We are probably all tired of hearing how the US economy has been taking to the brink because of Fannie Mae and Freddie Mac. The reality is though that these are probably the only thing keeping the mortgage industry afloat at the moment. If people can’t borrow money to buy new homes then there really will be no end to this economic crisis.
It is hard to predict how the Federal government will react to this continued decline in the housing market. The removal of the tax incentive has taken away a safety net that helped the housing market make it though the last few months – now this has been taking away. The tax credit may not have had spectacular results, but things certainly would have been a lot worse if it wasn’t there. We will now have to wait and see what the coming months have in store. This really is a worrying time for the housing market and the economy as a whole. The only real good that come out of this is that house prices are going to need to fall dramatically, and this should mean that more people will be able to afford to buy – maybe this will be when the turnaround occurs.
