Academic journal article ABA Banking Journal

A Housing Bottom with Little Bounce

Academic journal article ABA Banking Journal

A Housing Bottom with Little Bounce

Article excerpt

AFTER THREE YEARS OF DECLINING sales and construction, we expect housing activity to finally bottom out in 2009. Merely finding a bottom will not mark the end of troubles in the housing industry or mortgage finance. The absolute level of sales is expected to remain very low and price declines and rising foreclosures will likely carry over into 2010. A bottom in sales and construction will mark the beginning of the end of the housing bust and will go a long way toward providing visibility in solving the more intractable problems facing the industry.

Speculation along with the proliferation of nontraditional mortgages led builders to overestimate what the sustainable demand for housing was. As a result, builders delivered about two million more homes nationwide than the underlying demographics could support.

It is not simply the number of homes hanging over the market that is creating problems but rather the types of homes and where they are located. The rapid run-up in home prices in and around major population centers encouraged builders to develop properties in the outer suburbs of major cities, the interior areas of Florida, and throughout California's Central Valley. Now that home prices have fallen, these markets look less desirable to aspiring home buyers, so there simply are way too many homes in the wrong places.

As bad as things are in the housing market, however, conditions are beginning to improve. We admit it is hard to see much sign of improvement, you just have to dig a little deeper beneath the surface to find the evidence. …

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