Worrisome Housing Market for 2010

With the rest of the economy seemingly entering recovery, the ever troubled housing sector is lagging. Indeed, home prices and buying activity are increasing, but only with respect to a devastating 2009.

Some economists believe the housing sector is bottoming out. Such assertions are based on the fact that in the first quarter of 2009, S&P’s Case-Shiller National Home Price Index had dropped 19% from the year before. In the last quarter of 2009, the same index dropped only 2.5% from the previous year (released on Feb. 23), a promising statistic for many. However, one must consider how much of an influence government intervention has had on such statistics, as well as the imminent withdrawal of government support in the housing sector during the coming months.

As we all know, the U.S. government has bent over backwards for the housing market in the past year. To lower mortgage rates and mend other financial markets, the Federal Reserve has bought over $1 trillion worth of mortgage backed securities. In addition, Congress approved a widely popular $8,000 “first time home buyer tax credit” to generate more buyers for the market…

Thus, the housing sector has shown improvement (with the government holding its hand) since the beginning of 2009, but will this re-growth carry on through 2010? Highly debatable. The Fed’s mortgage buying will cease by the end of March, and the first time home buyer tax credit expires at the end of April. Without government support, it’s hard to believe the housing sector has the capacity to not only stand on its own, but grow. In addition, other factors will hinder housing market growth such as a roughly 10% unemployment rate, the flooding of the market with an unwanted supply of newly foreclosed homes, and the lowest consumer confidence (as of Feb. 23) since April, 2009.

Only time will tell the fate of the housing sector in 2010. Until then, speculation shall rule. However, if the government isn’t ready to catch a falling housing sector halfway through 2010, total economic recovery may stay out of sight.


Alan Shaw
Group 2