Real Estate Still Stressed 2 Years After the Economic Downturn Ends

In the largest drop in over 2 years, the Case-Shiller Index is down 4.5%. There are several reasons for this. Market psychology is a reason that is seldom talked about. With little to no confidence in the housing market, people tend to wait longer before deciding to buy. When people anticipate lower prices, this adds to the deflation pressures that housing faces. The housing bubble, which peaked in 2006, consisted of prices that were far above fair value. After a bubble pops, the same price levels typically are not seen again for decades. A key reason for this is prices tend to overshoot during the correction phase. This has always been true with all financial bubbles in the past. Real estate may be a bit different because homes are absolutely needed to live in. That is, investors can avoid stocks or lose interest in them. On the flip side, there will always be at least some interest in housing.

The month of June resulted in discouraging job figures. Employment growth was almost zero and also the press has remarked that layoffs from bigger companies are returning. This reduces the number of of capable purchasers.

Home loans are in addition turning out to be significantly less obtainable due to the fact that bigger down payments are necessary as well as credit rating requirements are being tightened. With the absence of accessible home loans and prevailing consumer bias, the correction in house prices could carry on for a longer period than most predict. When the lack of employment dilemma is in fact structural, that will also end up being a resistance in which the real estate market will be facing for many years.

In the long run, the market will become balanced. In 10 to 15 years, population growth will absorb the excess houses and consumers will have paid down their large debts.

Ultimately, the one thing that will correct the real estate market is time. Any state sponsored program will mainly have a short term influence and supply and demand always triumph in the long term.

Eileen E Jacobs is a loan officer from Las Vegas, NV | Superior Mortgage Lending