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When Will We Return to a ‘Healthy Market’?

April 7, 2011 by MSI

So many times while reading the news, reference is made to a ‘healthy’ housing market, but, in reality, what is that? And, when can we expect a return to that ‘healthy’ place. Two weeks ago, the American public received more ‘bad news’ regarding the housing market. According to the most recent statistics from the National Association of Realtors (NAR), sales of existing homes fell 9.6 percent in February and median prices dropped to their lowest level in nine years.

You would think that with the level of supply currently available and historically low mortgage rates, buyers would start purchasing and we would have a quick return to ‘healthy’, right? Well, unfortunately it doesn’t work that way. While mortgage rates are historically low, standards are much tighter, making it more challenging for individuals to secure credit. Combine that with continued fears about unemployment, rising gas and food prices, and the thought that home prices may continue to fall making the traditional buyer fearful of investment.

One-third of existing home purchases in February were cash, signifying a huge influx of investors and affirming the reticence of the traditional buyer. Looking at the basic principal of supply and demand, it may be a while before we return to ‘healthy’. According to NAR, a healthy amount of supply would be between five and six months – currently there is 8.6 months of supply.

Interestingly the rental market could eventually push some markets back to ‘healthy’. A market that has seen average increases of one percent in each of the past several years, supply in the rental arena is depleting. Americans need housing and those not buying are renting, demand is higher and is expected to continue to grow, which will, in turn, drive up prices and possibly make renting less attractive and buying a more viable option again.

There are so many variables that play into both the economy and the housing market. Most experts predict that the instability will continue at least into 2012, so time will tell. Until then we will watch it closely and look for signs of stability and long-term improvement.