Thursday, August 26, 2010

my bus driver told me this yesterday morning..,

declineoftheempire | The housing market is crashing again. There are no positive indicators—none. Housing will be a drag on the U.S. economy for many years to come, but nobody knows how many. Demand for housing is in the toilet, and inventories are very high. Nobody knows how high. Amherst Securities estimates that the "shadow inventory" of available houses—the number of homes repossessed or in default that eventually will be offered for sale—stood at 7.3 million in the first quarter. That's over and above the huge unsold inventory we already know about.

Demand for houses is directly tied to high under-employment. Obviously, being unemployed or unwillingly part-time puts a crimp in your ability to buy a house. Since it reasonable to expect that under-employment will remain very high for most of the next decade, the ability of the housing market to bounce back will be impaired for just as long.

The only mystery in the housing market is why prices are still so high. With demand deteriorating rapidly, average home prices nationwide have no where to go but down. Falling prices will destroy wealth in the Middle Class over the next year or two (at least).

In the longer term, flat inflation-adjusted prices will not add to household wealth. In the 15 years preceding the collapse of the Housing Bubble, and because wages were stagnant or falling for ordinary Americans, the only way to build a nest egg was to own a home. With house prices going up & up, homeowners, especially in bubble areas (e.g. Arizona, California), felt wealthy. And on paper, they were as long as prices kept rising. When people feel wealthy, they spend money.