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If you've become comfortable with the current state of the housing market ... don't. Economists at Goldman Sachs (NYSE: GS) and Bank of America's Merrill Lynch (NYSE: BAC) say there's still plenty of risk in the housing market.
Alec Phillips, the head of Goldman's Washington office, said, "The risk of renewed home price declines remains significant." His "working assumption" is a drop of between 5% and 10% by the middle of next year.
Ethan Harris and Drew Matus from Merrill Lynch concur, writing "We should expect subdued home price appreciation over the next few years."
The government incentives, such as the first-time home buyer credit, the moratorium on foreclosures and the Fed's pickup of mortgage-backed securities were instrumental in stabilizing the housing market. Unfortunately, there is concern that these measures may take the calm they have created with them when they wind down. Whether they were temporary measures to right the ship or are ongoing market supports remains open to interpretation.
According to Goldman, the reduction in foreclosures by 450,000 and increase in sales of 200,000 – as a result of the stimulus programs – has resulted in a 5% increase in home prices across the country. Combined new and existing home sales reached 5.52 million (annualized) in August, up 15% from the January low.
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Reader Comments (Page 1 of 1)
10-27-2009 @ 3:48PM
william lindblad said...
Distinct possibility. The bulk of the sales rebound is in the 250K and under market. Another point that is not mentioned in the article is that a portion (unknown) of these sales are the result of auction process, tax sales,etc. The stimulus packages are certainly a major part of what appears to be stabilization, and as you state, are programs and not permanent. During the recent boom the majority of the building was in the +250K category so we can assume but two options. It is mostly still out there or there have been drastic price reductions. If the former is true than the fact remains that there is a huge inventory in this price range and ultimately it will have to drop in price, taking all else with it.