Monday, July 18, 2011

Real Estate Outlook: Housing Market Struggles

While it might not be at the pace that economists would like, the economy is recovering. Federal Reserve Chairman, Ben Bernanke, reported last week to the Committee on Financial Services, that "the pace of the expansion so far this year has been modest."

The housing market, however, continues to struggle. Concerns over potential policy changes, namely a required 20 percent down payment, has sidelined potential buyers.

According to the National Association of Realtors' ninth housing pulse survey, 71 percent of Americans says this requirement would have a negative impact on the housing market. And 82 percent of Americans say having the money for closing costs and down payments is the largest obstacle to buying a home, making this purchase too expensive.

This is troubling news, considering housing is at a more affordable rate now than it has been in decades.

Federal Reserve Chairman, Ben Bernanke, reported to Congress' Committee on Financial Services, that residential construction activity is low. "The demand for homes has been depressed by many of the same factors that have held down consumer spending more generally, including the slowness of the recovery in jobs and income as well as poor consumer sentiment," he says.
"Mortgage interest rates are near record lows, but access to mortgage credit continues to be constrained. Also, many potential homebuyers remain concerned about buying into a falling market, as weak demand for homes, the substantial backlog of vacant properties for sale, and the high proportion of distressed sales are keeping downward pressure on house prices."

The NAR survey has found that unemployment is at the forefront of people's minds. Sixty-one percent of Americans have job security concerns, saying layoffs and unemployment "are a big problem in their area."

Another paramount concern is the abolition of the mortgage interest deduction. While eliminating this tax relief would benefit the country's overall budget, fifty-one percent of Americans oppose it and fear it would carry negative consequences for the housing market.

According to NAR, "The stalled economy continues to adversely affect the housing market. Confidence in job security is a top obstacle (80 percent say “huge” or “medium-size”) to home ownership, while job layoffs and unemployment are ranked as the top problem facing Americans."

Bernanke says, "In part, the recent weaker-than-expected economic performance appears to have been the result of several factors that are likely to be temporary. Notably, the run-up in prices of energy, especially gasoline, and food has reduced consumer purchasing power."

Despite this fact, 72 percent of those surveyed by the NAR still say buying a home is a good financial decision. And the majority of respondents think now is a good time to buy. Besides the long list of social benefits, such as stabilty, safety and long-term economic gains, interest rates are at historic lows and prices are at incredible rates of affordability in every region. Now is a great time to buy.

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