Real Estate: Will it Recover?
America’s economic rebound depends on a real estate recovery, but many people are asking, “what’s it going to take to get it all going?” Housing always leads the economy in recoveries, and this one will be no different. In fact, already there are signs that housing is perking up. The most important factor driving home sales is affordability. With home prices falling in many parts of the country, and mortgage rates still near historic lows, affordability conditions have markedly improved.
While it’s true that unemployment is rising, it’s important to remember that 93 percent of working households have jobs, compared with 95 percent during good economic times. Those people who are working respond to incentives and attractive affordability conditions.
Measures like the new first time homebuyer tax credit and the increased number of mortgage loans qualifying to be purchased by Fannie Mae, Freddie Mac and the Federal Housing Administration are helping to bring home buyers into the marketplace. In 2009, existing home sales we estimated to total 5.4 million, up from about 5 million in 2008.
New home sales will not fare as well. There is an oversupply right now and home builders in most areas are being forced to cut back sharply. The total inventory of new and existing homes combined remains elevated, so further reductions in building will be a good thing.
Previous housing recoveries have shown that rising sales will thin out the housing inventory and begin stabilizing home prices. The credit markets will loosen up once home prices have begun to recover.
Home buyers and sellers should take a good look at the opportunities that exist in today’s market. For qualified buyers, this could be just the time to take advantage of the lower interest rates, affordable prices, and incentives like the tax credit. If you’re a seller who has owned your home for only a few years, remember that any loss you take on the sale is more than likely to be made up on the new purchase.
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