Profile picture for dacolan

The Answer to a Housing Recovery: Lower Prices

the primary problem in the US housing market remains one of supply and demand.  As the jobs market continues to weaken, deflation takes hold of the US economy and the shadow inventory floods the market the math  here remains simple enough for an Econ 101 student to understand.  In order for the housing market to build a firm foundation that does not require government aid we will need to see a reduction in prices.
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Based on Merrill [Lynch's] estimates the housing market is unlikely to normalize before 2015.  The supply/demand imbalance is simply staggering at the current levels and is likely to deteriorate if the economy weakens further

  • August 31 2010 - US
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Answers (5)

Sounds good in theory, but there is still the problem of supply and demand. Even lower prices will not create demand where there is none. Lower prices will not fix consumers' credit scores so they can borrow money to buy and there aren't enough cash buyers to buy all the homes on the market.

  • August 31 2010
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Profile picture for Doug Emde
Absolutely correct Jennifer.  It's the economy and until that turns around and people feel safe in their jobs we won't see a robust market.  We will see some slight gains, under 2%, but still an underperforming market.
  • August 31 2010
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Although obviously job security is crucial for a robust RE market, there is truth to what dacolan says as well. 
Homes simply need to be affordable and owing a bank a ridiculous amount of money in order to buy overpriced properties puts an overwhelming burden on your average homeowner.
Problem is, lower prices is devastating to current home owners when they need to sell.
Its going to take a long time for the RE market to sort itself out.
  • August 31 2010
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In our market (Miami Beach area), at least, the demand is there and it is strong. The financing is not, and that is the core problem here.

Prices on many properties have dropped and have created great opportunities for investors that can pay cash. In addition there are just as many prospects that want the properties for second homes or in planning for retirement but need financing. Many of these prospects can make substantial down payments 50 or 60% is not uncommon but still can't get financing for most condo buildings. This is a big issue here. There are a few solutions to financing but they are limited in scope.

Despite the various issues, in some areas of our market, such as the West Ave. area there are buildings, such as the Waverly, where the prices are actually climbing and supply is relatively low. 

The crisis is not over but there seem to be a few bright spots.
  • August 31 2010
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Profile picture for dacolan
Sounds good in theory, but there is still the problem of supply and demand. Even lower prices will not create demand where there is none. Lower prices will not fix consumers' credit scores so they can borrow money to buy and there aren't enough cash buyers to buy all the homes on the market.

The housing market's fate will always be inexorably tied to employment and the overall economy, however, your assertion is correct only where there is zero demand. Lower prices will stimulate buying in an environment of weak demand.
  • August 31 2010
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