It has been 5 years since US housing peaked and in the pursuant years we have endured the most severe market adjustments.
The current weakness in housing is viewed as a payback from stimulus-induced highs. Many economists project that housing will stabilize once the correction has been made.
Housing Related Jobs - Housing-related employment and construction have taken their hits and are less vulnerable. At its housing and construction accounted for 7% of all US jobs; not it accounts for 5%. Preceding the boom, residential construction approached 5% of GDP and today it accounts for 2%. A rebound in the greater labor market is needed to sustain a durable rebound.
Household Wealth -Nearing the bottom of the housing market also means that the associated wealth loss has also been essentially absorbed.
Threats to economic and housing market recovery:
Shadow Inventory - Banks, Lenders and Investors continue to hold substantial “shadow” inventories of REOs (real estate owned) that they have and continue to foreclose on and repossess. The speed that these properties are offered could further prolong a soft market.
Interest Rates - These are in the hands of the Fed and their ability to borrow on the global market. Rates are directly tied to the confidence in the credit markets. Most importantly, confidence in the US’s ability to repay its National Debt will weigh heavily on our cost of borrowing and availability of credit. A sharp pullback from risk in the credit markets could drive rates up and dampen housing.
Investor Confidence - A broad retreat in the financial markets could prolong or even further deepen the recession. Nevertheless, the future of housing looks bright. Good news, considering the dark days of recent years.
For more information please contact Robert Prophet and the Robert Prophet Group. Send us an email or visit our web site: RobertProphet.com
