WHAT HAPPENED TO HOUSING MARKET?

The overheated housing market cooled to levels seen in early 2000’s. What happened? For one, the GDP fell and is expected to be back to average by the end of the year. Key employment rates are holding so that’s not it. Affordability plummeted with the home prices outpacing income and the CPI. This trend started in 2001. The Feds have attempted to reverse the drop in home sales by reducing the rates 2 3/4 % in just the last three months, but that affects home equity lines and Adjusted Rate Mortgages not underlying mortgages. The problem has been overpriced homes for sale and buyers whose homes are not worth less than they owe. Lowering interest rates isn’t going to help. Consequently, the States and the Feds are putting in place measures to help these distressed homeowners, but the magic formula hasn’t been put in place yet. Mortgage origination is back to a 2001 level and appreciation has fallen off except here in New Mexico. It’s still a solid market. Home values are predicted to level off beginning in 2009.

Supply and demand are way out of whack. The usual supply in the USA is 6 months. The oversupply which started in 2006, is now up to almost a year and in the East coast it is closer to 4 years! It will take a couple of years just to work off the builders’ supply. Depreciation is spreading like a virus in States like California, Michigan, Arizona, Nevada, Florida and Oregon. New Mexico is holding up at a normal rate of 4-6% a year.