Home > Avid Law Center, Foreclosure, Loan Restructuring > Housing Market In Recovery – False Optimism?

Housing Market In Recovery – False Optimism?

In recent months, there has been a lot of good news pointing to a housing market recovery: home prices have fallen by 33% nationwide, interest rates for 30-year fixed rate mortgages are hovering around 4%, builders are building again and home sales have been trending up… all signs of a positive 2012.

However, CNN Money is painting a more realistic, albeit more pessimistic, picture of this so-called recovery.

Analysts are waiting for housing prices to bottom out – a clear precursor a full recovery – which they fruitlessly predict will happen each year.

From CNN Money:

“Economists widely cite the short-term obstacles weighing down prices. These factors range from high unemployment and household debt to the so-called “shadow inventory,” or all the properties that have yet to come into the market because of pending foreclosures or skittish homeowners delaying sales until prices improve.”

The bigger threat to a full recovery is rising interest rates. Yes, the Federal Reserve announced last week that it would keep its record-low rate for another three years but, they can’t stay low forever. CNN Money argues that when rates will rise, and the eventually will, that could drive home prices down since the cost of taking out a mortgage becomes more expensive.

“At some point, interest rates will start rising back toward the long-term median of 8.9% from the current 4%. Depending when and how quickly, the jump would make homes much less affordable for the average American family. Roberts notes that, back in 1968, U.S. households on average spent 7% of their real disposable income on their mortgage payment with a down payment typically at 20%. Assuming the same down payment, that share has more than doubled to 15% today or likely higher since many mortgages approved over the last decade required little or no money down. “With real disposable incomes stagnant as inflation pressures rise, that 15% of the budget is becoming much harder to sustain,” he says.”

So, while immediate signs point to a recovery, interest rates should be the real indicator of where the market is truly headed.

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