Harvard Study Predicts Long Return to Healthy Housing Market

27 06 2008

A new study from Harvard University predicts housing woes will continue as the economy wavers from the sharp drop in home building, credit and stock market turmoil, and a slowdown in consumer spending.

The report, The State of the Nation’s Housing 2008, released in June by the Joint Center for Housing Studies, a collaborative effort by Harvard’s Kennedy School of Government and the Harvard Design School that researches housing in the United States, said pressure on home prices will persist until the backlog of vacant homes is sold.

“Further price declines will not only increase the probability that mortgage defaults end in foreclosure, but also put a tighter squeeze on consumer spending,” the report stated.

The report comes out as new home price data shows continued price declines in April, and consumer confidence plunged to a 16-year low.

New data from S&P/Case-Schiller and the Office of Federal Housing Enterprise Oversight show the home price gains of the past three years erased.

The S&P/Case-Schiller index, the closely watched measure of housing prices, showed home prices in 20 major cities declined a record 15.3 percent in April compared with April 2007, essentially rolling prices back to 2004 levels.

A separate report from the Office of Federal Housing Enterprise Oversight, which oversees Fannie Mae and Freddie Mac, said that in April home prices in the U.S. fell to the same levels they were at in December 2005.

Even as the housing morass continues, the Conference Board said its monthly measure of consumer confidence declined to 50.4 this month, the lowest level since February 1992 and a drop of more than 50 percent since last July. According to a Reuters poll, economists were expecting a consumer confidence reading of 56.4.

If the economy plunges into a severe recession, housing demand could fall even further, the Harvard researchers said. At least 1 million vacant or for-sale housing units were on the market in early 2008.

If the economic downturn proves to be mild, “the fundamentals of demand are likely to drive a strong rebound in housing once prices bottom out and the economy begins to recover,” the report noted.

Source: Jacksonville Business Journal


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