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Posted: 1:40 p.m. Thursday, June 30, 2011

Is the housing market getting better or worse?



Is the housing market getting better or worse? We are in a time period where you can either scare yourself silly with the headlines or feel more relaxed about what's going on with housing.

Here's the reality: The housing industry is suffering from an overhang of too much inventory. Period. We built far too many housing units to meet demand at the peak of the real estate bubble. In fact, the most recent stats suggest we built between 10 and 14 million more housing units than were needed!

The best indicator of the oversupply is how many of those housing units were never occupied by anybody, or if they were occupied, it was by renters only. There was never any intent of the part of the speculators to live in them.

The bubble was a time fueled by easy money and no income checks. Then the pendulum swung hard the other way. Now lenders make it nearly impossible to qualify for a home loan.

So let me tell you about what matters for the intermediate and long term:

 

  • No meaningful new building for practically the last 5 years means the excess supply will eventually be absorbed by natural household formation.
  • The house of cards has tumbled with borrowing. You will need a down-payment and credit and income that's verified going forward.
  • As far as housing prices, some markets are starting to get in equilibrium with supply and demand and see a rise in housing prices. Others likes Detroit are still in trouble because there are no jobs. That's the second part of this equation. When local employment conditions improve, housing markets improve as well.

 

But barring a catastrophe in the world, I don't think you should buy into the idea that predicts we have a huge collapse in housing waiting to happen again. The worst is over. I'm not saying there necessarily won't be any more drops in value. I'm just saying that anything from here will not be a precipitous drop. I believe the stage is set for a slow, steady recovery in housing.