Housing Market in a Double-Dip Recession

Posted by Jim DeBellis on May 13th, 2011

A double dip is great for ice cream cones and pool parties, but it’s not so good for recessions. We’ve been hearing the term kicked around for a few years now, and last week one big property valuation outsourcing firm, Clear Capital, reported that the U.S. housing market was officially in double-dip territory. The broader economy may or may not follow suit, but a second wave of steep declines in home prices indicates that the housing battle continues, and “recovery” may mean little more than stopping the descent — like the Japanese “L-shaped” recovery of a decade ago.

Government programs giving cash to homebuyers, which ended a year ago, may have given the illusion of bringing things back into balance for a while, but the report released on May 5th indicates that average home prices nationwide are now nearly a full percentage point below the bottom of the first dip set in March of 2009. Home prices throughout the nation fell at a rate of 11.5% over the past nine months, which is as steep as the initital precipitous decline we saw when the housing bubble burst in 2008.

The bad news is that the factors contributing to the decline will remain built into the system for years to come. Nearly 35% of all housing sales are now foreclosed homes and many more are short sales, which does nothing but devaluate the entire supply of homes on the market. And with more than 28% of all mortgages in the U.S. underwater, the glut of foreclosures creating havoc in the market seems likely to continue.