When Will Housing Hit Bottom?

Every year, various media pundits an economic "experts" tell the public that the housing market has bottomed, that prices will begin to rise, that the worst is behind us. They say this every year. Every. Year. 

The National Association of Realtors is (quel surprise!) quite bullish on the future of the housing market.  Not so fast, says Lance Roberts of StreetTalk Advisors:

He sees 2012 as another year of lagging sales, considering the average household debt for Americans over the age of 16 comes to $96,229 per person. In addition, the average income before taxes is roughly $54,110 and many Americans have a debt-to-income ratio of 177.8%, making it difficult for them to qualify for a home loan.

Roberts says the average median income for a family is $55,000, and the average median home sales price is $214,000. To afford such a home, the average American would have to put down 20%, or roughly $42,800. But, Roberts says that amount is nearly impossible to save, given the state of the economy and consumer debt levels.

"In today's credit constrained environment due to the financial crisis which has left the major banks saddled with millions of homes that are delinquent or in foreclosure -- there is little reason to lend money to borrowers who can't meet very stringent qualification requirements," Roberts wrote in a recent blog posting.

Still, his contrarian report arrives at a time when analysts are placing confidence in lower prices to spark a housing turnaround.

Even here in DC, which has been basically the only market to defy recent trends, housing prices stalled in the fourth quarter. And while housing starts had been finally recovering, new home sales fell in December, weakening what had started out as a strong quarter. Owner occupied sales rose, but all that does is eat up a wee bit of the outstanding inventory; it doesn't mean a return to growth. 2011 now stands as the weakest year for new home sales on record. And that's in a record low interest rate environment.

Of course, the general rule of recoveries is that things look really bleak until they don't.  But still, let's ask the question: what if housing doesn't recover?  Can the economy recover without it?

There are a lot of reasons to think that it can't. Underwater houses constrain consumer spending; they make people feel poorer; they depress labor mobility, because people who can't sell can't move elsewhere to look for a job.  Since new businesses are often funded with personal credit--or even loans against the house--it probably depresses firm formation, and the resulting innovation.  And of course, construction is normally a substantial component of GDP.

On the other hand, there's no iron law that says that we can't have a strong economy with a weak housing sector.  We just never have had, before.

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Original Page: http://feedproxy.google.com/~r/TheAtlantic/~3/BpmibZK0Tes/

Consider that one-fourth of US home forclosures come from Florida. Believing things have to get better because they can't get worse only works when you know we have hit bottom. We're not there yet...