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Housing Market Still Has A Way to Go

Harrison Stowe
2 min read
Housing Market Still Has A Way to Go

While the housing sector has paced an impressive recovery since summer 2012, America’s property market is still on unsteady ground. Underwater mortgage rates remain high throughout big cities, and buyer interest shows signs of flagging among first-time buyers. Thematically speaking, high-demand metros throughout the West Coast are witnessing price gains that threaten to elbow out a bulwark of young buyers. While conditions are unevenly improving, certain greater obstacles remain.

As a new story from AOL Real Estate points out, the challenges facing the housing market are quite broad. Comprehensively speaking, the biggest hang-ups seem to be aforementioned rates of underwater mortgage combined with ongoing difficulties with credit restrictions and lending practices. The housing bubble was propelled in part by irresponsible lending practices, and the lasting whiplash has been extreme hesitancy on the part of America’s lending industry to provide loans. Or, failing that, provide loans with exceptional stipulations and heavy down payments.

On the brighter side, home sales hit their highest rate since the crash in June of this year. As the AOL Real Estate article notes, home prices in America’s twenty largest cities were up 12.1% in June 2013 from a year earlier. A projection from the National Association of Realtors predicts that home sales could rise to a full 5.1 million by the close of 2013, a sharp increase from the 4.2 million recorded at the close of 2010.

However, new construction lags notably behind both current demand and projected demand for homes. The discrepancy between the two is an especially powerful motivator for rapid ascension in home prices, a trajectory that might be so extreme that it precludes otherwise interested buyers from closing on a home. As I noted in a prior post, 20 and 30-something homebuyers are both the most crucial home buying demographic as well as its least financially secure.

However, nationally comprehensive housing prices still lag. While highly sought-after metros that supply the most promising job opportunities for young buyers might report inflated prices, residential property values across the U.S. have yet to fully stabilize. In regions where property inflation isn’t a concern, lagging price recovery is yet another reason for buyers to shy away. Young prospectives who may have seen their siblings or parents hurt by plunging values still have a hard time coming to believe that home purchases are a good investment.

What’s To Be Done?

We’ll need to see each of these hurdles alleviated gently, and ideally within a similar timeframe, in order for the housing recovery to continue. Lending practices were understandably constricted after the crash, but there will need to be a slight easing of restriction in order to let more responsible buyers have a chance at closing on homes. And while this factor is less easily controlled than a policy aspect, home builders will necessarily need to refocus their efforts in regions with high demand to ensure prices remain stable. Along with this, we’ll need to see the greater economic rebound continue unimpeded so that younger homebuyers can develop the windfall capital necessary to sustain mortgage payments as well as accommodate stricter down payment standards.

Photo: Alex E. Proimos

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.