When will the housing market recover?

John W. Schoen • Profile • E-mail

The cold front that has swept through the housing market has hit some areas of the country much harder that others, and a reader from Florida is among many wondering: When will things begin to pick up again? Wayne in Reno is wondering what the heck a 'large cap' stock is. And Rachel in Missouri is having a hard time convincing lenders to give her credit.

Please, when will the housing market stabilize? Or better yet, start to pick up?
-- Name withheld, Valrico, Fla.

You won’t see a recovery of the housing market until the big inventory of unsold houses has worked its way through the system. And no one knows how long that will take.

Most economists and analysts think the housing market won’t turn around before at least the end of this year. But they won’t really know the turnaround is here until after it’s happened. So your guess is really as good as the experts'.

To make your prediction, you’ll have to come up with a few other forecasts. First, you’ll need to know how many recent home buyers who are having trouble paying their mortgages will ultimately default and lose their homes in foreclosure. Since those foreclosures are still rising, it’s a pretty safe bet the housing market hasn’t hit bottom. Those foreclosed properties are often sold quickly, putting even more pressure on the prices of the rest of the houses in the same neighborhood.

Some lenders are now working with borrowers who are in trouble to see if they can rewrite these mortgages with terms that will help avoid foreclosure. Since that process is under way, it’s too soon to know how much longer foreclosures will keep rising.

It’s also not clear whether the recent rise in mortgage rates will throw more cold water on an already-chilly market. Rates jumped a few weeks ago, and the bond market has been unsettled since. If rates move higher from here, that could delay a housing recovery.

But keep in mind that the real estate market is really a bunch of separate markets. The biggest problems are concentrated in a few regions (including Florida) and within certain types of properties and price ranges within those regions.

We talked to a builder in Florida last week who said that while sales of big, expensive condos are still going nowhere, he’s doing a good business building single-family houses for the lower end of the market. As long as Florida’s economy keeps creating jobs, and people keep moving to the state, they’ve got to have somewhere to live.

Some markets are already beginning to perk up. New home construction in May was up 15.7 percent in the Northeast and 15.5 percent in the Midwest.

But the areas that saw the biggest surge in new building and price increases during the boom — including Florida, California, Arizona and Nevada — are now feeling the brunt of the pain from the housing bust. When a regional gets overbuilt it takes longer to work off that excess inventory. So some of these markets could remain stuck in the slump after the national numbers show an overall housing recovery.

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