Positive numbers, but housing may not have bottomed

Before you go, we thought you'd like these...
Before you go close icon

A number of experts believe that recent statistics show that the US housing market has hit bottom and that prices and inventories have a foundation to improve. New Case-Schiller data and numbers from the government show that sales have begun to tick up in a number of markets.

Most of the optimism is probably premature because it fails to look at a few basic trends. The first of these is that those who are currently unemployed are not only unlikely to become new home buyers, but those who currently have homes are likely to default on mortgages and force home prices lower and inventory higher. Now that the recession is slowing there is some belief that unemployment rates will level off. But, large companies are still announcing lay-offs with some frequency and smaller firms, which have no access to credit, are likely do the same.

Additionally, mortgages are still hard to come by. Banks are extremely reluctant to lend money to anyone who is not unusually credit worthy. Because so many American have high debt and few assets due to the drop in the stock market and housing prices, the number of individuals who can qualify for a mortgage is falling.

The government's programs to modify mortgages in order to keep people who cannot afford to make their monthly payments in their homes has stalled. Banks often make more money on foreclosures than they do on modified loans. And people living in homes with mortgages higher than their home values often default because they see no financial future in keeping their houses.

The last reason the housing market probably has not bottomed is that buyers are reluctant to enter a market where they think there is even a chance that values could drop another 10%. A large number of potential buyers are still waiting on the sidelines for a powerful signal that buying a home is a good investment again.

Housing has not bottomed. As a matter of fact, home prices may have much further to fall.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Read Full Story

Sign up for Breaking News by AOL to get the latest breaking news alerts and updates delivered straight to your inbox.

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners