U.S. Housing Market—Why it Remains Problematic

It’s true the housing market is much improved from a year ago, but there continue to be problems. George gives you an update on the real estate situation.If you are a buyer, the current housing market continues to afford good opportunities, whether as a principal residence or as an investment property. If you are looking for beachfront housing in Florida, there may not be a better time than to buy now. But then the housing market remains in a flux driven by high unemployment and record foreclosures.

It’s true the housing market is much improved from a year ago, but there continue to be problems. The S&P/Case-Shiller Home Price Index of 20 major metropolitan areas in the United States continues to show declines and, in basic economic analysis, this is obviously not good.

The NAHB Housing Market Index, an indication of the sentiment of builders, came in at a dismal 16 in May, which is terrible. A reading below 50 suggests negative sentiment amongst builders. The reading has not been above 50 since April 2006.

I remain somewhat bearish on the housing market in 2011 and into 2012. If you are a buyer, great; but sellers may continue to face lower prices.

Yes, there have been some encouraging signs, but price declines and weakness among the homebuilders remain issues.

Lowe’s Companies, Inc. (NYSE/LOW) fell short on its quarterly sales and earnings. This development for the world’s second-largest home-building supplies company points to the continued softness in housing.

Housing Starts were weaker than expected in April, with an annualized rate of 523,000, below the estimate of 563,000 and a revised 585,000 in March. Building Permits were also soft at an annualized rate of 551,000, below the estimate of 590,000 and a revised 574,000 in March.

The continued weakness in housing impacts wealth and consumer spending, and could drive a double dip in the most extreme circumstance.

The major hurdles remain the continued high foreclosures and short sales in housing, along with declining home prices, so there are still reasons to be concerned.

The housing market is improving and is better than where it stood a year ago. However, I feel there will continue to be barriers as we move ahead.

Consider that a key driver of the housing market is jobs. We need jobs and security in order to give buyers confidence to assume a mortgage and not to worry about losing jobs and missing payments. The jobs reading for April was positive, but the unemployment rate edged higher to nine percent. The quality of jobs being created in America is also a sore spot. Low paying jobs do little to help the economic renewal.

So, while there continues to be sluggishness in the housing sector, we are seeing some encouraging developments. The housing sector will likely improve slowly with baby steps rather than a major leap forward. The worst is probably behind us and things will improve.