Nothing is a certainty—especially considering the future of America’s housing market. Experts are predicting improvement, and at the very least, stabilization. Empirically, there is evidence out there to suggest that home prices will continue to fall, and other reasoning that suggests prices will cease falling, especially in the states like California, Nevada, Arizona, and Florida that were hit hardest by the market collapse.
Evidence suggesting that matters will improve is backed by statistics stemming from the unprecedented amount of federal help the government has given the housing market. Things like the Homebuyer Tax Credit and 50-year record low mortgage rates are keeping homes selling—at least for right now. But when considering the long term according to John McIlwain’s recent publication, entitled “Housing in America: The Next Decade”—which he published as Senior Resident Fellow and Chair for Housing at the Urban Land Institute—there are certain economic factors that dictate a very slow recovery and suggests a shift in the way the housing industry has been functioning.
(To read about Mr. McIlwain’s credentials, click here.)
Mr. McIlwain plainly points out that there’s one outstanding factor that’s going to hamper a stabilized housing market: foreclosure rates. According to his dossier, there were 1.7 million foreclosures in 2008, 2 million in 2009, and there are projected to be 2.4 million foreclosures in 2009. Currently, 1 in 7 mortgages are in default. In an attempt to curb soaring foreclosure rates, the federal government appointed the Home Affordable Modification Program (HAMP) to adjust rates for mortgages looking at the prospect of foreclosing. Unfortunately, this program has not proved as effective or as popular as the Homebuyer Tax Credit. HAMP has adjusted less than 5% of eligible mortgages. At best, the government’s attempts to help the foreclosure problem has only stabilized the damage, not reversed it.
McIlwain goes on to point out that despite the efforts of the government, the two major factors that are preventing an improvement in foreclosure rates are unemployment and “under water” mortgages—both issues that have had disparate regional effects and are currently projected to get worse on a national scale before they get better.
Above is a look at unemployment coming into 2010.
These mortgages that are “under water” (meaning that the mortgage rates are paying for a house that is no longer worth the price of the mortgage) are stalling what McIlwain calls the “move up” market, meaning homeowners who upgrade to better, more expensive second properties, or who move to attain better employment. The inability for these homeowners to relocate or pay off their under water mortgage is “[constraining] labor market mobility and economic recovery.”
Inevitably, McIlwain comes to a pessimistic conclusion: because government programs cannot compensate for unemployment or under water mortgages, foreclosures are greatly expected to rise as home prices will fall—despite what off-the-cuff projections will tell you.
Now if you feel a little bit lost or perhaps disheartened about McIlwain’s decidedly grim predictions, he does do us the service of outlining exactly how we’ll pull out of this housing dilemma. That, however, is another point to pick up in another blog.
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