Housing has been an albatross around the economy's neck, dragging it down over the past couple of years. Although there are still some big problems, there also are signs of life — along with a sense of hope that the market is starting to pull out of this historic crash.
One a recent chilly winter day in Boston, songwriter Jonathan Downing was playing the piano in his dining room. The bright morning sunlight streamed in through a bay window, illuminating many unpacked boxes.
Downing and his wife, Tiffany Sewell, bought their house a couple of weeks ago after he got into Boston's Berklee College of Music. They were scrambling a bit to find a place to buy quickly, and they think they got a good deal: They paid $250,000 for a solidly built, turn-of-the-century, single-family house in Boston's Jamaica Plain neighborhood. It still needs some work.
The couple's Realtor, John Bristol, says more homebuyers are stepping up to the plate because of the combination of record low interest rates, lower prices, and a tax credit for first-time homebuyers. There's also a sense that the economy isn't headed for complete Armageddon.
"I think it will be that way next year — a buyers market," Bristol says. That's so long as interest rates remain low.
Rising Home Sales
Nationally, sales of existing single-family homes rose nearly 20 percent over just the past few months. But prices in most places are not going up. In part, that's because a glut of foreclosures keeps putting downward pressure on prices. The Bristols' house is an example: A previous owner was headed for foreclosure and the bank agreed to let the house go for less than that person owed on it.
Unemployment still remains very high. So Bristol doesn't expect prices to start rising anytime soon. He says we still have a long way to go: "I hate to say it — three to five years before we start seeing some good appreciation."
A Worsening Foreclosure Crisis?
One closely watched housing index, the Standard & Poor's Case-Shiller Home Price Index, shows about a 30 percent decline in prices nationally from the peak during the housing bubble.
The index had been showing some very modest price increases in some metro areas as compared with the month before, which might suggest that prices are starting to bottom out. But the latest round of data showed prices staying pretty flat. And many economists expect prices to slip a bit further — perhaps an additional 5 to 10 percent.
"I just don't see prices bottoming out, simply because the foreclosure problem is so serious," says Patrick Newport, a housing economist with IHS Global Insight
Newport says 1 in 4 homeowners in the U.S. is "upside down" in his home, owing more than the house is worth. He worries more of them could decide to walk away from their homes. And so he thinks the foreclosure crisis — already the worst in 50 years — could get even uglier in 2010.
Newport says we still don't have a handle on how high foreclosure rates will go, even though the rest of the economy is getting better and starting to grow.
Homebuilding Jobs
On a brighter note, economists are hoping to see some improvement when it comes to homebuilding. After the housing bubble burst, homebuilding all but ground to a halt. The country has lost hundreds of thousands of jobs related to residential construction.
"The level of construction is extremely low — about as low as it has been since World War II," says Mark Zandi, chief economist of Moody's economy.com.
Zandi says builders have pulled back so much that even if the housing market remains a bit anemic, homebuilding is likely to pick up in 2010. He says that's a very important change.
Housing construction is expected to go from being a very significant drag on the economy to being a small positive. Zandi adds, "That's very key to ensuring that the economic recovery continues on and ultimately evolves into an expansion."
In other words, more homes getting built next year could mean more construction jobs, more orders for windows and doors, refrigerators — everything that goes along with a new home. The National Association of Home Builders predicts a 35 percent increase in homebuilding in 2010. So, Zandi says there are more reasons to be optimistic about the housing market and the broader economy.
More Attention On Foreclosure Prevention
Both Zandi and Newport think that unemployment and the foreclosure crisis will continue to slow down the housing market's recovery. Zandi says he'd like to see some improvements to the latest government efforts to prevent foreclosures. With so many people upside down on their mortgages, banks and policymakers in Washington are looking at new efforts to try to give people an incentive not to walk away from their homes.
There are some other wild cards for the housing market in 2010. One is what will happen when the government starts to wind down the emergency measures it has been undertaking to keep interest rates low and make mortgages more available. Those efforts have been keeping the housing market alive. So it is unclear what will happen as the government starts to ease back on that stimulus.
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