A Guest Post –
There has been little good news for homeowners in the past few years. Where home prices once climbed steadily, they have since plunged; throwing millions of American homeowners into foreclosure and leaving millions more owing more than their houses are worth. So far, there have been few signs of recovery. A housing market rebound will depend on a number of factors.
Dropping Unemployment Rate
A drop in the unemployment rate is essential to a housing recovery. Consumers understandably hesitate to purchase a home when there is a good chance they will lose the income needed to pay the mortgage. Unemployment has hit young people particularly hard. When the unemployment rate drops substantially among Americans aged 25 to 34, these young people will buy homes. Until now, they have been staying in school, moving in with parents or living with friends, which has contributed to a lower demand for housing. These young people represent a pent-up demand that will emerge as the job market improves.
Falling unemployment rates also improve consumer confidence, which fell significantly after the 2008 housing market crash. As jobs are added and the broader economy grows, people will feel better about spending. Confident consumers are more likely to buy a house, spend money on renovations and pay for home services. Increased demand will also spur an increase in home prices.
Reduction in Inventory
The massive inventory of homes on the market is bad news for homeowners. A number of lenders, under pressure from lawsuits claiming improper foreclosure processes, have put the brakes on foreclosures, adding to the huge backlog. Until this inventory of stalled foreclosures has been cleared, the housing market cannot recover.
Speeding up the foreclosure process is vital to clearing the shadow inventory that exerts a negative pressure on housing prices. Selling foreclosed homes will help stabilize prices and improve the health of neighborhoods. If current low rates of new construction continue, buyers will choose their new homes from among the pool of existing homes, helping to clear the market.
With the large number of foreclosures in recent years and millions of potential buyers shying away from a home purchase because of financial uncertainty, demand for rental units has skyrocketed. With increased demand, rents have begun to rise. When renters realize their monthly rent costs as much as a mortgage payment, many will turn to home ownership, depleting inventory and increasing demand for houses.
Increasing Home Mortgage Rates and Prices
As potential buyers sense that the housing market has bottomed out and prices begin to increase, more will jump into the market to take advantage of record low prices. While the significant yearly price increases of the housing bubble are unlikely to occur again, a return to the steady appreciation of the ’80s and ’90s is a distinct possibility.
Potential homeowners currently do not feel pressure to buy a house, and many are afraid to invest in a deteriorating market. Mortgage rates remain low. As soon as home prices begin to appreciate and home mortgage rates nudge upward, potential buyers will move quickly to take advantage of bargains. The increased demand for mortgages and houses will boost the cost of both. As prices rise, lenders will become more confident and ease their lending standards, making it easier for consumers to buy homes.
This article was contributed by Jonah Trenton, an Editor at RefinanceMortgageRates.org