A Housing Crisis Checklist
Have we seen the worst of the housing downturn?
Most experts agree that things are likely to get worse before they get better. But with prices firming and inventories of unsold homes now falling in many areas, some at least see signs of a market bottom.
Here are five reasons to be hopeful—and five to be fearful—about the housing market.
The Glass Half Full
1. Lower inventories: The dramatic oversupply of unsold homes is finally beginning to fall—by about 4 percent last month, according to the latest figures from the National Association of Realtors. That's still an 8.8-month supply at current sales rates (well over the six-month threshold that signals a buyer's market), but it at least suggests that supply and demand are beginning to come in line.
2. Firming prices: Although one month does not a trend make, prices of existing homes have staged a bit of a comeback of late and are actually higher than they were a year ago, according to the NAR. Unfortunately, sales volume has continued to drop as sellers brush off buyers' low-ball offers. But at least those houses that do sell are going for a bit more.
3. No subprime spillover: As spooked as stock market investors have been by the subprime mortgage mess, the overall economy is holding up just fine. Employment is strong in most parts of the country, and consumer spending—the economy's most important growth engine—is humming right along, both of which suggest that home buyers remain able, if not willing, to pull the trigger when the right house comes along.
4. Steady mortgage rates: Although they've ticked up a bit since earlier this summer—to about 6.6 percent for a fixed-rate loan, versus about 6.2 percent a month ago—mortgage rates remain below their historical norms and aren't expected to rise substantially in the near future. So with personal income rising and house prices steady or falling, buyers can now afford more house than they could have a year ago.
5. Tightening mortgage credit: Lenders are taking a much closer look at mortgage applications—verifying income, assets, and the like—as they look to reduce their exposure to bad loans. The long-overdue move may slacken demand over the short run, but it will prevent the sort of surge in delinquencies and foreclosures that has recently wreaked havoc on the market.
The Glass Half Empty
1. Rising foreclosures: The subprime mortgage meltdown has contributed to national foreclosure rates that have nearly doubled in the past year. (They're actually up nearly 800 percent in California.) With little or no equity, many subprime borrowers are simply walking away from their homes, leaving their bankers holding the bag and the neighbors staring at the unsold eyesore across the street. And with more foreclosures expected as a flood of adjustable-rate mortgages reset higher over the coming year, supplies of unsold homes will only increase—at the worst time possible.
2. Builders keep building: Despite a sharp falloff in construction permits, home builders with thousands of acres of undeveloped land have little choice but to keep building. The result: Inventories of unsold new homes have fallen by a paltry 5 percent over the past year. Some economists say it will take a decline of at least four times that before the market—and prices—finally firm up.