Housing: When will the market hit bottom?

The "feeding frenzy" in some of the hardest hit housing markets doesn't mean that home prices will stop their downward spiral.

Buyers have been on a feeding frenzy in some of the country’s hardest-hit markets, said Chris Pummer in MarketWatch.com. First-time home­owners and brave investors are “picking clean” bank-owned properties as soon as they hit the market in states such as Arizona, California, Florida, and Nevada. This trend not only “belies the doom-and-gloom evoked by recent reports of rising mortgage delinquency rates and foreclosure activity,” it may be a sign that the U.S. housing market has finally hit bottom. “You can’t discount how critical an upturn in those states will be, considering they account for 46 percent of foreclosures nationwide.” Stability in those markets will make banks throughout the country less “anxious” to dump their foreclosed properties—and that should help stabilize prices and interest rates across the board.

Yet few analysts are convinced that this flurry of activity indicates a lasting trend, said David Bogoslaw in BusinessWeek. “Recent gains in long-dated U.S. Treasury yields augur rising mortgage rates, while the likelihood of increasing foreclosures could further bloat the housing supply in the months ahead.” While it’s true that hard-hit areas have seen an increase in sales, many of the buyers are “bottom-fishers” looking to take advantage of fire-sale prices, says Robert Stevenson, an analyst at Fox-Pitt Kelton Cochran Caronia Waller in New York. A real recovery is probably still a couple of years away, adds real estate consultant John Burns. In fact, many of the “better” housing markets will likely see their own spike in foreclosures before the worst is over.

There’s no reason to think home prices won’t continue their downward spiral for some time, said Yale economist Robert Shiller in The New York Times. “Even the federal government has projected price decreases through 2010.” Unlike the stock market, the real estate market often moves at a “snail-like” pace. Buyers and sellers are slow to change their views about the housing market, much less to act on them. “Even if there is a quick end to the recession, the housing market’s poor performance may linger.” This happened after the U.S. housing bust of the early 1990s; home prices didn’t budge until 1997. After Japan’s economy imploded in 1991, land prices continued to sink lower for the next 15 years.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE
https://cdn.mos.cms.futurecdn.net/flexiimages/jacafc5zvs1692883516.jpg

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up
To continue reading this article...
Continue reading this article and get limited website access each month.
Get unlimited website access, exclusive newsletters plus much more.
Cancel or pause at any time.
Already a subscriber to The Week?
Not sure which email you used for your subscription? Contact us