Why Housing Will Come Back (Lower Prices mean Affordability, which will lure buyers)

Forbes ^ | 09/15/2010 | Joel Kotkin

[EagleClaw]

This may sound counter-intuitive, but the key to unlocking the housing market may be a RISE in interest rates. The first-time homebuyer is the key to the overall residential housing market, and they are largely on the sidelines now, despite the significantly increased affordability noted in the article, as well as interest rates at historic lows.

Why are they waiting? Uncertainty about the economy and employment. But also, the belief that home prices have not yet hit bottom. Why buy now if rates remain low, but prices will be lower in six months?

A rise in interest rates will push them off the fence and into the market, then the gears may begin to turn again. And as a probably more significant side-effect, a rise will stop the transfer of wealth from savers to borrowers.

[Oatka]

(IT ALL BOILS DOWN TO DEMOGRAPHICS AND SUPPLY vs DEMAND)

Aye, there's the rub. The baby boomers are retiring and going into smaller homes, the "booming" population is made up of low wage illiterate and unskilled illegal aliens, the professional classes are having their wages eroded by H1Bs and the blue collar types continue to sink into service jobs (where available) as their jobs go overseas - that's hardly a base to bring housing back.

And then we have the "phantom inventory" (bank-owned houses not on the market.)

[Vaduz]

Why Housing Will Come Back. If you get two for the price of one and they kick in a free Nobel prize.

[Siena Dreaming]

tell me how these issues will be overcome

Don't forget the Repubs are about to take Congress on a wave of intense public anger. The public is looking for reform.

If Paul Ryan's plan gains momentum (and I think it will), spending will decrease which will lend a huge boost of confidence to the economy. In addition, I'm sure the Repubs are going to push for a reform of Fannie/Freddie which will put those homes back under private stewardship. The bias will be toward leading Gov't out of housing altogether. Then we will likely see all kinds of incentives to buy as private companies compete again for business. Young families will gain optimism and will have aspirations for larger houses.

All is not doom and gloom despite the messages with which the media hammers us.