The Tough Reality of the Housing Market

The excerpts bleow are from an article in the WSJ and address some of the tough realities of the current housing market. The article has additional information about specific markets and also a table of some basic housing metrics on 28 metro areas. Text in bold is my emphasis.

. . . . . a severe tightening of credit by mortgage lenders is keeping many buyers out of the market, while the huge supplies of homes for sale have persuaded others that they can wait for further price cuts.

Meanwhile, The Wall Street Journal's quarterly survey of housing-market conditions in 28 major U.S. metropolitan areas shows that inventories of unsold homes are still rising in most of them, prices are generally falling and overdue loan payments are piling up.

Some forecasters now warn that home prices are unlikely to start rising in most of the country before 2009 or 2010. A year ago, many home builders and lenders still thought that the housing boom -- which more than doubled prices in some areas during the first half of this decade -- would end with a gentle landing. Now those hopes are dead.

Home lenders have been growing more cautious for more than a year. But they suddenly tightened the screws much more in August, when investors grew so alarmed about rising defaults that most wouldn't buy loans other than those guaranteed by Fannie Mae or Freddie Mac or insured by the Federal Housing Administration. That led to a brutal drop in both lending and home sales.

Even so, home sales are likely to remain weak for months because lenders are still very cautious and huge supplies of homes are weighing on prices. On a national basis, the number of previously owned homes listed for sale is enough to last about 10.5 months at the current sales rate, the NAR said. The supply of detached single-family homes, at 10.2 months, is the highest since February 1988. Supplies hovered around four to five months for the first half of this decade. When the figure is longer than six months, it is considered a buyer's market.

Inventory figures reported by Realtors probably understate supply because not all foreclosed homes are sold through real-estate agents, says Doug Duncan, chief economist at the Mortgage Bankers Association. Another issue that has not (and cannot be measured) is shadow supply, that is the number of homes that would like to sell, but are not on the market because the owner knows they will not move.

The better news for sellers is that the number of homes on the market is no longer rising as fast.
House prices, as measured by the S&P/Case-Shiller national index, are likely to fall about 7% this year and a similar amount in 2008, says Jan Hatzius, chief U.S. economist at Goldman Sachs in New York. He believes a further small decline is likely in 2009. Of course, house-price movements vary greatly around the country and even within metro areas; in some desirable locations with limited supply, prices are likely to keep rising.

Thomas Lawler, a housing economist in Vienna, Va., believes prices generally should stabilize in 2009 at around 15% below their mid-2006 peak. After that, he sees them reverting to their long-term trend of rising slightly faster than inflation. The fast increases of earlier in the decade were an anomaly, fueled largely by lax lending standards, Mr. Lawler says, and the current housing slump is persisting because "multiple years of excess tend to take multiple years to correct."