Builders, Consumers Eye Slow 2009 Housing Market

Mortgage rates are low, but credit is scarce. The housing market is a wreck, and foreclosures are growing. Unemployment rates are approaching double digits, and the job market is in crisis. All of this portends a depressing 2009 for builders and homesellers alike.

Homebuilders were looking forward to this year as an opportunity to gain traction and make a comeback.  Much to their chagrin, things have gone from bad to a whole lot worse-much worse, in fact, than anybody had foreseen. Homesellers were also looking for some reprieve from two or three years of slumping prices and a lack of buyers. With the government promising to help them refinance into better mortgage rates, and with banks saying that they're ready to help lend money to buyers, sellers had some hope. Unfortunately, none of these promises have materialized.

Hopeless failure

When speaking of hope, for example, the huge FHA program called Hope for Homeowners, which was supposed to save hundreds of thousands of Americans from foreclosure, has been a hopeless failure. A few dozen people signed up for the program, and many of them won't even qualify to participate.  The government has been forced to go back to the drawing board to figure out another way to make this expensive initiative work.

No good housing market news

Despite many different bailout actions by the government, and in the absence of more dramatic initiatives to boost the job market, cut interest rates, loosen credit, and stop the housing market collapse, not much good news can be found on the horizon. Confidence among professional builders is at an all-time low, according to data from the National Association of Home Builders, an industry trade group. Sales of new homes are also at a record low, says the government's Commerce Department. That has caused swelling inventories of unsold homes, the bankruptcy of several regional builders, and huge unemployment within the building trade job market.

Silver lining-mortgage rates

That gloom and doom may have a silver lining for anyone wanting to purchase a new home, however, because distressed homebuilders are offering valuable incentives, discounted mortgage rates and, in some cases, mortgage payment insurance to protect homeowners against potential unemployment. Mortgage rates are good, hovering near all-time lows. But if the government intervenes to buy down loans, mortgage rates might continue to fall to even more attractive levels. Plus, we'll likely see even cheaper prices for both new and existing homes.  This is because additional foreclosures related to lost income are hitting homeowners.  This would be on top of existing mortgage crisis problems that they already face.

Consumers should tread carefully and cautiously when weighing any purchasing decisions in this dismal economic environment. It's almost certain that unemployment is set to keep rising, and the job market is rapidly deteriorating. Buying a home-and making the large down payment that's now required by lenders-may use up precious cash reserves. The new homebuyer may soon need those funds to survive an unexpected layoff emergency.