Housing prices, once on the rebound, are falling again. Inventories of unsold homes mean housing prices will remain weak for years
Real estate for sale and Housing and Urban Development (HUD) signs are displayed outside a home in Chandler Heights, Ariz., June 2, 2011. Although building permits for new housing rose an unexpectedly strong 9 percent between April and May, the longer term outlook for housing prices is gloomy. Joshua Lott/Reuters
June 16, 2011 (Christian Science Monitor) -- Many housing optimists a year ago believed not only that the housing collapse was over, but also that a robust rebound was under way. Low mortgage rates and collapsed housing prices, not to mention the $8,000 federal tax credit for new home buyers and other initiatives, seemingly were going to kick-start housing activity nationwide.
Then a funny thing happened on the way to the housing recovery. The tax credits expired, home sales dried up, and prices resumed their declines from their 2006 peak. Excess inventories piled up due to overbuilding and mounting foreclosures. In the meantime, buying those lower-priced houses became more difficult as lenders, burned by the housing crash, tightened lending standards and increased down-payment requirements.
As a result, the housing sector not only has failed to bolster the weak economic recovery but is also likely to continue to struggle for years. And that's bad news for the economy, which has softened in recent months.
Excess inventories are the mortal enemy of housing prices. Lower prices are needed to unload surplus inventory, but in turn, lower prices bring forth more inventory from anxious sellers. The anxiety of house sellers and the reluctance of buyers are enhanced by the realization that house prices can fall -- and are falling for the first time in 70 years.
Those excess inventories are huge.
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