Wednesday, April 20, 2011

Housing Continues to Suffer


Housing is a mess.

While most of the attention of financial analysts and media is focused on the rapid rise in the prices of commodities like oil and gold, housing prices in many parts of the country continue to tick lower.

The problem is largely psychological. Even if they can afford it, no one wants to buy a house if they think prices will be lower 6 months ago.

I had a long conversation last week with someone who is very involved in the home mortgage market in the Boston area.

After her children graduated college, she and her husband decided to "downsize" and sell their house.

After sitting on the market for several months, they finally sold their home, but at a price well below assessed value ("my neighbors are not happy with us", she said with a rueful smile).

So what now?

Well, this well-connected, savvy mortgage lender has decided to rent. She, like many Americans, believe that housing is trapped in a downward price spiral. While renting a home lacks that psychic appeal of owning real estate, at least you don't feel like your retirement assets are locked up in a depreciating asset.

Here's the change of housing prices since their peak in 2006, courtesy of the blogger West Wing:

Home prices (median) since '06 peak: Miami -32%, Tampa -33%, L.A. -35%, San Diego -37%; Phoenix -50%; Ft. Myers -54%; Vegas -55%

Little wonder that most Americans are avoiding buying homes.

Bloomberg carried an article about this trend yesterday. Here's an excerpt, with the full link below:

The most affordable real estate in a generation is failing to lure buyers as Americans like Pauli sour on the idea of home ownership. At the end of 2010, the fourth year of the housing collapse, the share of people who said a home was a safe investment dropped to 64 percent from 70 percent in the first quarter. The December figure was the lowest in a survey that goes back to 2003, when it was 83 percent.

“The magnitude of the housing crash caused permanent changes in the way some people view home ownership,” said Michael Lea, a finance professor at San Diego State University. “Even as the economy improves, there are some who will never buy a home because their confidence in real estate is gone.”


Americans Shun Most Affordable Homes in Generation as Owning Loses Appeal - Bloomberg