Is the Housing Market Crash Over?

The Housing Market Bubble Burst - Now What?

We're all very aware of the housing market bubble and the fact that is has burst.  But where do we go from here?  Have we hit bottom or is there more turmoil on the way?  We're facing the same problem we faced when the tech bubble burst - the economy had not encountered the same unique combination of effects before, so in other words, we're in uncharted waters.  But economists are not optimistic - some are expecting the market to continue it's decline, from 25 - 40%! 

A Record Number of Unsold Homes

This is not all that surprising given the record number of unsold homes in the United States.  Taking a look at the construction/ financial sector of real estate, we see that many big-name banks have been slashing the prices of repossessed homes so they can get rid of them.  As more banks realize that their houses are not going to sell, they will follow suit.  The effect can also be seen in the private sector - just take a walk around your neighborhood and see how many unsold homes you come across.

Mortgage Securitizations Fall

Housing demand was fueled by giving buyers access to global pools of capital.  Lacking regulation and standards, however, let loose a stream of high-risk loans at unreasonably low interest rates.  The victims of these loans are defaulting, and lenders are exerting extra caution.  According to Business Week, a third of planned home sales were canceled or delayed last autumn due to loan issues.  Even Fannie Mae and Freddie Mac are tightening their belts.  While the Fed's rate cuts in January have eased the pain from adjustable-rate loan resets, they haven't, and won't be able to, eliminate them.

Baby Boomer Houses on the Market Creates Supply Issues

While baby boomers have been spending money by expanding existing homes and buying second ones, the trend can't last forever.  As the baby boomer generation begins to face death or illness, these homes will come on the market.  Currently it looks like the real estate sector is not making the appropriate preparations for this event.  If things continue at the current building clip, there will be a massive oversupply of houses in the near future.  The growth rate of young Americans simply isn't enough to compensate for all the homes that will be on the market.

Is the Housing Market Crash All Bad?

While the housing market crash certainly isn't bringing cheers from homeowners, in the long run it may teach (as did the tech crash) a valuable lesson.  It will not only force Americans to live within their means, but it should also help to reduce our nation's astronomical debt load.  Will this be the beginning of the transition from a credit-based to a cash-based economy?  And what can you do right now to prepare for it?  You could start by building up savings, and focusing your investments in industries that are not as sharply impacted by the housing market.  Check out our various long and short analyses for recommendations.

When will the Housing Market Recover?

Now that we've established that we haven't yet hit bottom, the next reasonable question to ask is how long do we wait until we're back to normalcy?  Read our article on when will the housing market recover for further insight into the housing market crash.