Housing Recovery: Long Way Off

It is going to be very difficult for the U.S. economy to turn a significant corner without a housing market that is at least stable. Amazingly, the housing situation has not improved much at all during 2008, even as builders halt new construction and slash prices on newly built inventory. Increases in foreclosures have completely negated any of those builder actions. As you can see, home inventories remain elevated and have just been treading water all year, well above historical averages.

The Treasury Department is thinking about trying to get mortgage rates down to 4.5% from the recent 5.5%-6.5% range. Will that help the housing market recover? I doubt it (interest rates aren’t the problem). How many people can’t afford to borrow money at 5.5% to buy a home, but could do so with a 4.5% rate? Not many, I suspect.

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2 Thoughts on “Housing Recovery: Long Way Off

  1. Jeff Partlow on December 12, 2008 at 11:41 AM said:

    Does ‘Existing Home Inventories’ include the total of both existing and new homes for sale? Can we estimate what the number of months of inventory backlog would have to be reduced to before the current price declines stop? I think I recall reading (or hearing) somewhere that it would be at about 8 months.

  2. Chad Brand on December 12, 2008 at 11:53 AM said:

    Yes, it’s all completed homes for sale. A normal inventory would be about 6 months worth of supply, so we have a ways to go before we should expect price declines to be halted.

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