Some economists say the housing market isn't just diving off a 10-ft. board into a swimming pool, it may be about to plunge off a 100-ft. cliff into the ocean. Another wave of foreclosures looms, which could further drag down home values. So should you sell now, or wait to buy? Hold on.
According to Radar Logic Inc., a New York-based real-estate data and analytics company, the housing market isn’t just diving off a 10-ft. board into a swimming pool, it may be about to plunge off a 100-ft. cliff into the ocean.
Radar believes the current relative stability in the housing market might be short lived. Right now, the oversupply of homes available for sale is buffered by the government investigations of bank foreclosures initiated last year. As a result, mortgage servicers have stopped the progress of many foreclosure proceedings and this, in turn, is keeping housing supply off the market. That makes it seem that the market is in better condition than it really is.
When this artificial blockage of distressed homes finally hits the market, there will be an even bigger glut of homes for sale. By laws of supply and demand, that means home prices will come under pressure once again. Granted, the drop may not be as much as a 100-ft. cliff, but it is likely to be substantial. The good thing is that the price pressures will make homes more affordable, and eventually this will clear-out the looming glut of foreclosed homes -- a necessary evil to make it the market balanced again.
Additionally, there is more good news that may soften the bad. Foreclosed homes for sale may be parceled gradually by lenders, meaning that the market drop could be controlled to some degree. (In Chicago, one bank is even giving some away.) Indeed, it would be foolish for lenders, investors and servicers to do otherwise.
There is another good thing, as well: Right now, home builders are not adding supply to the market. According to an article in the Wall Street Journal, new home construction fell 23.9% in April from a year earlier, suggesting that only 523,000 new homes will be built in 2011. (At the height of the housing boom, nearly 1.5 million new homes a year were being built.)
All of this means that economists are pushing back estimates on the housing-market recovery. It seems certain that it won’t happen this year; I’m thinking much later, perhaps 2014. That indicates that buyers, at least in some areas -- I recommend David Leonhardt’s recent New York Times article on the subject -- may want to wait to purchase for a year or two. It also suggests that sellers, again location specific, may want to put their property up for sale immediately, or risk having to wait several years or more before home prices bounce back. For those who can’t make up their minds, doing nothing is always that other option.