Reasons to hope and fear the coming housing market
16 Nov 2012
Posted by Andrew Kantor 
Four solid pieces of good news about the housing market — today, and looking ahead.
1. The number of homeowners underwater has dropped below 30 percent for the first time in, well, forever. That’s in large part due to rising home
prices values, thanks to reduced inventory. In short, it’s a decent barometer of the market’s overall health.
2. Markets are improving [almost] across the board. The S&P/Case-Shiller Index showed that 95 percent of U.S. housing markets showed values improving — up 2.0 percent since last year, overall. The Federal Housing Finance Agency says that its Home Price Index shows a 4.9 percent annual jump, and CoreLogic found it was up 5.0 percent.
3. Looking at its delinquency survey, the Mortgage Bankers Association found that “shadow inventory” — homes in or near foreclosure that have yet to hit the market — was much less of a threat than originally thought. Foreclosure inventory is down, and even less is coming down the pike as delinquency rates continue to drop.
4. Mortgage rates are still at record lows, and the Fed has said it has no plans to raise the prime rate.
Yay! Time to cue the rainbows and brass bands, right? Not so fast.
We’re definitely off the bottom, and things are definitely improving. But it would be hard for them not to be, considering how low the market got. Put another way, we’re celebrating the patient being off life support — good news, for sure, but that doesn’t mean he’s healthy or recovered. Just better than he was.
Above we listed “The number of homeowners underwater has dropped below 30 percent” as good news. And it is. But keep in mind that a lot of that doesn’t actually affect all that much. For many people — anyone who doesn’t want to move — being underwater is just something on paper. Heck, I’m technically underwater; my house dipped in value after I bought it last year. So?
Home values are up — also a good thing. But so much demand is being driven by rental investors, it’s hard to say what the long term implications will be. We all know that neighborhoods of owners tend to be worth more. What will happen when the rent/own ratio goes up? Will that drive values down, or keep them from rising as high as they might otherwise?
And then there is the elephant in the room: Student loan debt. It’s crippling the housing industry, and it’s doing it for the long term. Young folks are simply not able to buy homes because they paid so much for their education. If they don’t become first-time buyers, move-up buyers don’t have a market to sell to.
Our nation’s trillion-dollar (that’s $1,000 billion!) student loan debt is a bottleneck, and one with far-reaching implications. Americans owe more for their educations than on their credit cards.
The Education Department reported that defaults on federal student loans has hit 13.4 percent. That’s almost one in seven students who are unable to pay for their educations. How can we expect them to buy a home? (And without an education, how can we expect them to contribute meaningfully to the economy. An uneducated country doesn’t prosper.)
Oh, and standing next to that elephant is its brother, the other elephant: The “fiscal cliff,” when government spending gets sliced across the board — something that disproportionately affects Virginia, with our huge reliance on Federal dollars. If the bucks stop flowing from Washington, expect some significant ripples in both the residential and commercial markets.
(The good news is that, in reality, we’re not going to be cutting our military spending by a significant amount for the long term. There are simply too many people and businesses that rely on those government programs for their survival. But that doesn’t mean it won’t be a bit of rough going while Congress gets its act together.)
Sure, we all want a crystal-clear story to tell: Things are getting better. But reality is messy, and economics messier still. So as the Magic 8-Ball would say, “Reply hazy, try again.”