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The Housing Crisis Is Over

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by

mwkruse
in

The Wall Street Journal: The Housing Crisis Is Over

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what's going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much. …

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2 responses to “The Housing Crisis Is Over”

  1. Joe Avatar
    Joe

    To simply say that the US housing crisis is over is too simplistic and irresponsible. The mortgage crisis is far from over, with so many people upside-down in their homes and no end in sight. Many have loans on homes that are no longer available and wouldn’t qualify for others that are now available. That also means that those first time homebuyers, who may have qualified for home loans last year, will not be able to buy this year…or likely in the next either. This is contributing to another major issue here is that there will be a expanding divide between those who can afford housing and those who cannot. Many people will simply not be able to afford to live in the communities in which they serve. Once again, the middle (and lower) class families are struggling to survive with gas and food prices on the rise. Very soon, many Baby boomers, who will want to retire, will have to unload their homes, which are likely to have high mortgages, in order to survive…In other words, there are major socio-economic, both national and regional, variables that have yet to come into play that will play significant roles in recovery or not…

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  2. Michael W. Kruse Avatar
    Michael W. Kruse

    I agree that “over” is too strong. The has been a very high number of adjustable rate mortgages coming due in recent months but that bubble has come back down to normal levels as of this month. So that aspect of the problem is over.
    But I’m not sure I’d agree that times are now harder for first time homebuyers. On the contrary. Homes are now less expensive than they have been at any time in the last decade and a half. It is a buyer’s market. But I do agree that not everything has played its way out.

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