What’s Going on in the Housing Market

“The Leong Side of the Market” Column,
by George Leong, B. Comm.

The housing market is hot where I live. There are very few houses coming up for sale, as it appears homeowners are deciding to renovate and build additions rather than moving and having to pay agents five-percent fees. Yet, while my area is in high demand, this is probably not the norm, as the country’s real estate market continues to be soft and is characterized by declining sales and home values. At the same time, the amount of foreclosures is continuing to rise, with estimates pegging the amount of foreclosed homes at nearly three million.

The sad reality is that millions of homeowners are sitting on homes with less value than their mortgages, and this is not good. This is a key reason for the rising foreclosures and, by all accounts, it will likely get worse. Case in point, in the fourth quarter, the amount of “serious delinquencies” surged, according to the Office of the Comptroller of the Currency and the Office of Thrift Supervision. The report said that the current and performing mortgages represent 86.4% of mortgages in the fourth quarter, the seventh straight quarterly drop. These are terrible metrics for a housing market trying to rebound. In fact, the major threat of increase foreclosures will continue to hamper consumer confidence and consumer spending, which in turn impacts economic growth.

On Friday morning, the Obama administration announced a strategy that would reduce the capital owned on mortgages by those in trouble. The plan essentially will allow homeowners in financial distress to get new loans to help pay for their mortgage, hence avoiding having to foreclose.

The plan will help; but, in reality, I do not feel it will be enough to avert the major foreclosure crunch that will surface. There are currently about 4.5 million homes that could foreclose. Yes, the plan will save some homes, but it will clearly not be enough to save the masses. Foreclosed properties also mean lower sales prices for many homes, and this is not good.

What I see is declining home values that will continue to erode the confidence of homeowners and will impact their desire to spend on non-essential gods and services. We are seeing this in the soft durable goods data.

And there is still the issue with the soft jobs market. So, until there is improvement in jobs and housing, I fear the worst and feel there could be more hurt ahead for homeowners and the economy.