Saturday, June 23, 2007

How Long Will The Housing Downturn Last?

Americans are unrealistically overconfident about how long the housing downturn will last with most thinking that their homes will continue to rise in value.

There are a bunch of factors which weigh against the housing market rebounding.

  1. Houses have appreciated to ridiculously high levels over the last couple of years, while real wages for the middle class have held stagnant, so that houses have become grossly unaffordable.
  2. Mortgage rates, while not at historic highs, are much higher than they were during the housing run-up, which was partly fueled by the availability of cheap loans.
  3. The collapse of the subprime mortgage market. It's become harder for people with poor credit to obtain financing.
  4. Age-Wealth Gap- twenty somethings, already saddled with student loan debt, are having a tough time affording houses. There is a vast age-wealth gap in this country between boomers and twenty somethings. This means that twenty somethings don't have the financial resources to buy their boomer parents' houses.
Housing insiders predict that this current downturn will last two years. All housing is local, and certainly the US population is still rising, but we aren't going to see a national turn around until some of these factors start changing. Its very possible that prices will start to gradually rise at reasonable appreciation levels once mortgage rates fall some more.

That said: it could be an excellent time to own a rental property, as a generation of Americans who can't afford to own homes have to live somewhere.

1 comment:


The downturn in housing has only just begun.