Housing recovery stalled, household formation needed

The trend of falling housing prices continued for several consecutive months through September, Time Moneyland recently reported, but so did the trend of progressively slower decreases in home prices.

The trend of falling housing prices continued for several consecutive months through September, Time Moneyland recently reported, but so did the trend of progressively slower decreases in home prices.

According to the source, focusing on the national picture may obscure more accurate, if limited, local views. Cities such as Atlanta, Phoenix and Las Vegas are still experiencing new lows, according to the S&P/Case-Shiller home price index, while states including Arizona, California and Nevada are still seeing large numbers of foreclosure filings.

Even in places without so many new filings, built-up inventories and many properties already in foreclosure processing are expected to slow down the pace of market improvement for some time. States that have suffered from foreclosures may be experiencing a braking effect on home purchase activity beyond the others as prospective buyers postpone purchases for fear of further distressed properties driving prices still lower, according to the source.

On the other hand, Detroit and Washington, D.C., have shown that some cities are already making strides toward recovery. Detroit, the news source notes, experienced three months straight of positive year-over-year change in home prices, while the nation's capital's prices improved both annually and monthly in September.

Based on the data, the source predicts the housing market will not make a major recovery until 2013, although it may begin in 2012. That may mean months more of weak performance. According to the source, prospective buyers may be better off striking before market conditions change for the better, as long as they are sure they are willing to stay in their new home for some time afterward.

Economist Karl Case recently stated on a Bloomberg Radio program that the main factor missing for a housing recovery is for consumers to resume household formation. According to Case, household formation has been the way inventory has been cleared in the past, and the current reduced pace is preventing that from happening again. The current lack of economic growth and job creation has consumers adopting conservative spending strategies and saving money, as well as choosing to live with family or friends and defer striking out on their own.

When that circumstance is altered, the economist indicated, household formation will push demand higher and start moving more inventory. Only 600,000 new households formed this year, according to Bloomberg, compared to 1.5 million in 2006.



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