Four Issues Surrounding Housing Right Now

Homeowners are paying a lot of attention to the housing market right now, and with good reason. For most people, their home is their biggest investment. As home values nationwide have fallen over the past few years, it has become apparent that real economic recovery can’t happen without at stabilization in the housing market. There are several issues that pertain to the housing market that are in the news on an almost daily basis. Here are four of those issues and some ideas on how they will impact home sales and housing prices.

 - First Time Homebuyer Credit: The $8000 tax credit that first time homebuyers are eligible to receive if they make a home purchase prior to December 1st has boosted sales, but what will happen to sales when the incentive expires? Most first time homeowners who were thinking of buying have already taken advantage of this offer and the program offers no help to existing homeowners that are underwater and struggling to make payments. Combined with the fact that we’re entering the slow season for home sales, this is likely to lead to fewer home sales over the next several months.

 - Sales Slip in August: Home prices were up 7.2% in July compared to June, offering hope that a rebound was underway in the housing market. July was the fourth straight month of increasing home sales. The August sales number was expected to show another slight uptick in sales, but it was instead a 2.7% decline in sales. This number tells us that we aren’t out of the woods yet in the housing market and confirms the notion that recovery in home sales and prices will be a long, slow process. A decline wasn’t shocking after the unexpectedly large July sales number but it certainly doesn’t signal a vibrant housing rebound, at least not yet.

- Foreclosures Are Still a Factor: A recent USA Today story reported that 7 million homes were either in foreclosure or delinquent on payments and expected to enter foreclosure. The heavy foreclosure inventory is dragging home prices lower and it’s a problem that won’t be solved anytime soon. At the current rate of home sales, it would take almost a year and a half to sell all 7 millions of these homes if there were no other homes on the market at all. What this means for homeowners thinking of selling is a longer sales cycle and more negative pressure on prices, which will probably show stability without notching noticeable increases over the coming months. Lenders are also a factor as they implement programs to help homeowners avoid foreclosure.

- Fed to Continue Supporting Low Mortgage Rates: The Fed is in a position to help keep mortgage rates low by buying loans from Fannie Mae and Freddie Mac in an effort to keep money flowing in the credit system. They had hoped that private investors would also step up to buy into these pools of mortgages but so far private investors have stayed out of the mortgage realm. The Fed announced that they will continue buying mortgage backed securities, just at a slower rate. Their total investment in supporting mortgages is expected to be $1.5 trillion. What this is likely to mean is that rates will creep up slightly in the short term but will stay near historic lows probably until at least the middle of 2010.