June 25, 2008

Harvard 2008: State of the Nation's Housing

According to the recently released Harvard Study we have more dislocation to come before we see home markets reach an equilibrium that begins to bring buyers back. In the overheated markets of 2003–2005, house prices surged ahead of incomes and new construction outstripped sustainable long-term demand. But when the Federal Reserve started to raise interest rates in 2004, prices were climbing so rapidly that buyers
still clamored to get in on the market. By late 2005, however, the combination of higher interest rates and higher home prices finally dragged down demand. Within the span of two years, sales and starts plummeted, prices fell, and home equity shrank.

Estimates from the Mortgage Bankers Association suggest that the number of loans in foreclosure proceedings nearly doubled to almost one million by the end of 2007, while the number entering foreclosure topped 400,000 in the fourth quarter alone.

The Rocky Road Ahead

With credit markets in such disarray, the for-sale housing inventory at record levels, and only small declines in interest rates, emerging from today’s housing slump could take some time.

This one will take longer to unwind. When bubbles burst, the longer and ,more unrealistic the rise the harder the return to reality. It will take longer this time to rebound given the unusually high levels of foreclosures and constrained credit markets.

Thanks for Reading
Howard Bell
A web site of over 450 articles related to real estate focused primarily on property management.

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