Has the Housing Market Hit Bottom?
- By:
- Tom Kerr | October 10, 2008
As real estate sales slump, so do home prices. As prices sink, market value and equity vanish, and foreclosures rise. Now, fresh Commerce Department evidence indicates that we're still in a downward spiral and far from the end in terms of foreclosures and lower housing prices.
A feature that recently ran as a cover story in the widely respected Barron's financial newspaper announced that the real estate market was about to experience a rebound. Various economic pundits rallied around data that sales in places like California had picked up compared to a few months ago. They cited statistics like those that show that in some cities in the Golden State, there's only a six- or seven-month inventory of homes, whereas last year there was a 10-month supply.
But they seem to have forgotten that a six-month inventory is indicative of a severe real estate recession. Instead of hitting bottom and bouncing back, as Barron's suggested, the real estate market continues to disappoint. Home prices are dropping and the number of foreclosures in the U.S. is going up, not shrinking.
On September 17th, the stock market fell nearly 5 percent-for the second session in a row-because crumbling housing prices and the collapse of one of the world's biggest corporations pushed jittery investors over the edge and into a full-fledged panic. What started the sell-off was another dramatic multi-billion dollar rescue of a major American company, AIG. Then, the government's Commerce Department released its new data about the status of the real estate market, and that was seen as just another nail in the economic coffin. According to the Commerce Department, housing starts-or, in other words, the building of new homes or groundbreaking for other real estate projects-was down 33 percent in August, compared to this time last year. That represented at least a 6 percent drop in new housing activity, which is the slowest activity that the real estate industry has seen in almost 18 years. To add insult to injury, the Mortgage Bankers Association released its own report in September, with data indicating that foreclosures on adjustable-rate loans (ARMs) to prime borrowers (people who have stellar credit and income), are now growing so fast that they're outpacing high-risk subprime foreclosures.
The last time things got this bad for real estate was in the 1990s. Then, home prices slid 20 percent within a 36-month period. After properties lost a fifth of their value, the real estate market continued to crumble for four more years. During that seven-year real estate recession, home prices fell a total of 26 percent.
In the current real estate meltdown, housing prices have already fallen about 30 percent, and the overall economy is just starting to show its most significant signs of trouble. As one astute economist put it, "The only light at the end of this tunnel is the one on the front of the locomotive about to hit us."
A feature that recently ran as a cover story in the widely respected Barron's financial newspaper announced that the real estate market was about to experience a rebound. Various economic pundits rallied around data that sales in places like California had picked up compared to a few months ago. They cited statistics like those that show that in some cities in the Golden State, there's only a six- or seven-month inventory of homes, whereas last year there was a 10-month supply.
But they seem to have forgotten that a six-month inventory is indicative of a severe real estate recession. Instead of hitting bottom and bouncing back, as Barron's suggested, the real estate market continues to disappoint. Home prices are dropping and the number of foreclosures in the U.S. is going up, not shrinking.
Numbers confirm downward trend
On September 17th, the stock market fell nearly 5 percent-for the second session in a row-because crumbling housing prices and the collapse of one of the world's biggest corporations pushed jittery investors over the edge and into a full-fledged panic. What started the sell-off was another dramatic multi-billion dollar rescue of a major American company, AIG. Then, the government's Commerce Department released its new data about the status of the real estate market, and that was seen as just another nail in the economic coffin. According to the Commerce Department, housing starts-or, in other words, the building of new homes or groundbreaking for other real estate projects-was down 33 percent in August, compared to this time last year. That represented at least a 6 percent drop in new housing activity, which is the slowest activity that the real estate industry has seen in almost 18 years. To add insult to injury, the Mortgage Bankers Association released its own report in September, with data indicating that foreclosures on adjustable-rate loans (ARMs) to prime borrowers (people who have stellar credit and income), are now growing so fast that they're outpacing high-risk subprime foreclosures.
History repeating itself
The last time things got this bad for real estate was in the 1990s. Then, home prices slid 20 percent within a 36-month period. After properties lost a fifth of their value, the real estate market continued to crumble for four more years. During that seven-year real estate recession, home prices fell a total of 26 percent.
In the current real estate meltdown, housing prices have already fallen about 30 percent, and the overall economy is just starting to show its most significant signs of trouble. As one astute economist put it, "The only light at the end of this tunnel is the one on the front of the locomotive about to hit us."
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