Double Dipping

Posted by Help Now on Wednesday, August 25th, 2010 at 6:05am.

The National numbers are in and it looks like we have a double dip situation on our hands. January 2009 was the bottom of the market, but last months numbers show we could have another dip approaching.
Last month the United States' home sales fell to a level we haven't seen in almost 15 years! Everyone expected home sales to be a little lower, but the results were lower than anyone thought. We knew it would be low because of the expiration of the tax credit. The tax credit compressed months of demand into a short period ot time. When you look at home sales there is a spike corrolating with BOTH tax-credit deadlines.
 
Now that the tax credit is gone we are experiencing a decrease in demand. Because less homes are selling there are more homes available on the market. When the supply of available homes is increasing, and the demand is decreasing, it is likely that home prices will go down.
 
Just as the tax-credit pushed demand it also stabilized prices. House prices had stabilized last year after steadily declining since 2006. Because this stabilization was artificial we now have to catching up with reality. Interestingly enough, relative to rents and incomes, the price of houses are now roughly where they should be when compared with historical norms. The past few years we have seen inflated home prices so the decreasing numbers seem exagerated by comparison.
 
A major concern of economists is that this news could cause a further decrease in consumer confidence and spending. Analysts say this news may cause consumers to lose urgency to buy homes because they'll want to wait for the prices to stop dropping. As the prices drop more people will owe more than they can sell their home for. Nearly one in four homeowners with a mortgage owes more than their home is worth. As this problem grows fewer people will have the ability to sell/buy homes. "You end up in a home-price-depreciation death spiral," said Laurie Goodman, Amherst Securities Group LP in New York. "It's not clear there's enough demand to handle this overhang without another round of price declines."
 

A word of good news comes from economist Paul Dales of Capital Economics. He suggests that "A double dip in the housing market and house prices will not be enough to generate another recession." They are estimating as much as a 5% price reduction in home prices. So far, we have not seen prices start to slide again. The median price of an existing home sold in July was actually 0.7% higher than it was a year ago!

About the Author:

Utah Dave - Neighborhood ExpertUtah Dave - Daybreak Neighboorhood Expert and Local Resident

My friends nicknamed me Utah Dave in high school because they said it didn't matter where we went in Utah, I would know how to get there and who we needed to talk to. The name sticks today as UtahDave has formed into a professional real estate network of Neighborhood Experts all across the state. I live in Daybreak with my wife and 4 amazing children. I enjoy dancing (which is how I met my wife Dawn) as well as traveling, coaching, and learning.

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