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November 23, 2014

Big Hurdles Pose Challenge to Housing Recovery

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Big Hurdles Pose Challenge to Housing Recovery

Home prices are inching up, record-low mortgage rates are creating more urgency with buyers, and foreclosures are falling. But despite the glowing reports, economists are still questioning whether the housing recovery will last.

The challenges that persist could make this “one of the longest, most excruciating recoveries in housing history,” MSN Real Estate reports. 

Some of those challenges to the housing recovery: Access to credit still remains very tight, job growth remains weak, and a large number of underwater home owners are still waiting for prices to jump more so they can have equity in their homes once again and then move on.

"Real incomes are not growing,” says Sam Khater, deputy chief economist for real-estate analytics firm CoreLogic. “We are at the same level we were in the mid-1990s. [The recovery] is not sustainable until incomes recover."

Also, economic uncertainty could prompt many potential home buyers to remain the sidelines, says Alex Villacorta, director of research and analytics at Clear Capital. “Debt-ceiling brinksmanship pushed down consumer sentiment 14.3 percent last year, the largest amount since the end of the recession, and uncertainty over taxes could throw a wrench into the recovery,” Villacorta told MSN Real Estate.

The number of underwater home owners also is constraining inventories of for-sale homes across the country. About 22.3 percent of homes -- or 10.8 million home owners -- who have mortgages were underwater or in negative equity at the end of the second quarter, according to CoreLogic. In the next two years, more home owners are projected to gain equity in their homes, which could likely cause inventories to grow. According to CoreLogic, just a 5 percent increase in annual home prices would likely lead to a “significant” number of underwater home owners obtaining equity in their homes. 

Still, some economists are watching the housing recovery closely and cautiously to determine whether it’s sustainable. 

"It seems as if we have a long recovery in order, given the slow economic growth and pace of hiring," says Ingo Winzer, president of Local Market Monitor.

Nevertheless, economists say the positive signs in the housing data in recent weeks can’t be ignored. For example, existing-home sales are up 11 percent in September compared to the same time last year. The median home price is $183,900, 11.3 percent higher than year-ago levels, according to the National Association of REALTORS®. Median prices of new homes also rose 11.2 percent in August, posting the largest one-month increase ever recorded, the Commerce Department reported.  

Source: “Could the Housing Recovery Sputter to a Halt?” MSN Real Estate (Oct. 23, 2012)

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