Housing Slowdown: How Long Will It Last?

My sense is the housing slowdown may not improve until late 2008 or into early 2009. Many sellers believe lower mortgage rates will stimulate buying activity as spring approaches. Consequently, sellers have not been too aggressive in lowering their selling price. Conversely, buyers believe prices should be substantially lower than where they stand today.

BusinessWeek wrote an interesting article in this week's issue titled the Housing Meltdown. The article notes house prices remain far above a long term trend line.

(click on chart for larger image)

Also, BusinessWeek notes:

"These regional pie charts show the results of a December survey of 1,509 homeowners asking whether they thought their home's value had risen or fallen over the past year. The survey was conducted by Harris Interactive for Zillow.com. Beneath each pie chart is Zillow.com's estimate of the actual change in house prices for the region over the past year."

(click on chart for larger image)

As noted in the above chart, a small percentage of homeowners believe the price of their home has declined. This type of thinking is extending the housing slowdown. Once sellers get through the summer and find they still have not sold their home, they will likely become more aggressive in lowering the home sale price. This event could act as a stimulant to reduce housing inventory and finally provide stability in the housing market.

Lastly, the chart below shows:

"A 20% decline in home prices would wipe out all of the home equity of two-thirds of all people who bought houses in the last year, Zillow.com estimates. The bars show the percentage of recent buyers in each market whose home equity would be wiped out by a further 20% price decline."

(click on graph for larger image)

Source:
Housing Meltdown
BusinessWeek
By: Peter Coy
January 31, 2008
http://www.businessweek.com/magazine/content/08_06/b4070040767516.htm?chan=magazine+channel_top+stories