US Housing Market in Trouble
Nearly four years after the US housing market bubble burst and put our economy into a downward spiral, prospects for real estate still look gloomy. In the Standard and Poor’s Case Shiller index report released Tuesday, 19 out of 20 US cities home prices dropped an average of 1% in a month, and the average price in four of them fell to their lowest levels in eleven years. The index has fallen for six straight months.
The housing market is coming off of its worst year of existing home sales in the last decade, and the worst in 50 years for new home sales.
Some cities like Cleveland and Detroit are reeling from a mass exodus of population, while others like Las Vegas, Miami, Atlanta and Phoenix are struggling from overbuilding during the housing boom.
Couple all of this with high unemployment and tighter lending standards and you have a recipe for disaster. Demand has been cut, while supply has increased, while lenders have gotten tighter standards and aren’t lending the amounts they used to. These factors alone are enough to create downward pressure on prices. In addition, nothing has stabilized which would be a concern for anyone buying a home. Would you want to buy a home while prices are still falling?
The housing market still remains one of the biggest burdens on the economy. Could more bailouts of troubled banks be on the horizon? Certainly possible, which will only mean more money printing by the Fed.
From the peak in 2006 around $6.3 trillion of equity has disappeared from the balance sheets of home owners. That is a massive loss for the American people and certainly dampens ones ability to spend money, and we all know how much of our economy is dependent on our spending.
The US real estate market has been battered. Look for this trend in real estate to continue until employment picks up and lending standards loosen. It is only when these two things change for the better that we can honestly expect to see housing improve.
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Lynette Zang
Chief Market Analyst, ITM Trading