Housing Market Confusion: Recovering or Declining?

Posted by Jim DeBellis on May 11th, 2011

Whether you open a newspaper, magazine, or turn on the TV news it’s hard to avoid the mixed signals and just plain contradictory headlines regarding the state of the housing market that greet us daily. One guru tells us that there’s nothing but roses from now on while the next expert is spewing gloom and doom that he sees lasting into the next decade. So, what’s the truth – and what difference does it make to us?

If you look at the housing market as a patient in a hospital, I think it’s safe to say that he’s going to be there for a while. The doctors have pretty much diagnosed the problems, stopped the bleeding, and know many of the risks to look out for as the patient recovers. But he’s not going to be shooting hoops any time soon. So, although things appear to be much more stable than they were during the chaos following the crash, there are still hurdles to overcome, as the disease is still in the system.

Nationwide, negative equity has reached an all-time high of 28.4%, with some cities reaching heights of 45% and even 55%. This becomes a huge problem if you have to sell your house now, as you will need to bring money to the table at closing. When death, divorce, or job loss force a sale, this will be catastrophic for millions of people and will continue to fuel the foreclosure parade – which, in turn, will keep on dragging prices further down that declining spiral.

Housing, more than ever, is directly tied to the general economy – jobs, oil prices, food prices, GDP – because too many people are being forced to play a balancing game that could crash down on them if they have to put just another hundred dollars a month into their gas tank or grocery cart, or if they get laid off.

The state of the housing market really depends on your household economics.  It’s probably not the time to buy housing equities, because then you’re buying a shaky market. But it’s a great time to buy a home, as long as you plan to hold it for five or ten years. If you can avoid selling or losing your home, you will be sheltered from most of the problems in the housing market today.