THE FUTURE OF HOUSING MARKET
The housing market peaked in 2005.Thereafter, until the beginning of 2009, there was a dramatic fall, as the housing bubble burst.The home ownership rate reversed and went back to 2000 level.
Just as the high level of activity in construction and housing market were not sustainable, the recent extremely low levels of construction will not persist indefinitely. As the population grows and the value of housing stock goes down, the demand for housing grows.
However in future, the underwriting standards will dictate more would be homeowners, to save for a down payment, before they will be able to close the deal.
From 2010 onwards the growth in demand for housing is expected to be between 1.1 million and 1.3 million new single family housing units per year, more than double the pace of single-family housing starts in November 2009.
This trend of upward activity in housing construction has been noticed due to a little spurt from the middle of 2009 onwards.The stocks of new homes, existing homes for sale, vacant homes that are not currently on the market, homes that are in the process of foreclosure and those are likely to be put on the market for sale remain high.
As a result, construction demand is likely to rise to its long-run level only gradually, while some demand is met by the stock of existing units. A slower demand activity is always more stable, as it is able to discount more factors.This is more true of the housing market.
In the past the housing demand, it is suspected was artificially driven by the market players and not by the actual users. The house prices were raised( to benefit the vested interests) to unsustainable high levels. The would be home owners were enticed to purchase homes, not on competitive prices, but due to the fact that housing loans were freely made available.
As the economic growth stabilizes, demand for housing will pick up.It definitely is going to contribute towards the economic recovery but may not be a leader for the economic growth.
COMMERCIAL REAL ESTATE
The problem of demand growth in housing market is compounded by over building, sudden drop in prices of houses that were sold at high levels and inability of home owners to pay the mortgage due to loss of family income.
The demand for commercial property has dropped due to sharp decline in the economy.The decline in business revenue due to economic reasons has hurt the industry. The office, apartment, industrial, and retail buildings, commercial real estate prices fell 43 percent from their peak in October 2007 to September 2009.
However less volatility has been observed in the non residential construction activity. Commercial real estate prices have declined since 2007.
Several banks have reported that they continued to tighten standards on commercial real estate loans.Where as none reported easing the loans. Since commercial real estate loans typically are relatively short term, an inability to refinance debt has led to a sharp rise in delinquencies and foreclosures.
Private sources of funding have shrunk, the Federal Reserve has helped fill the gap through the Term Asset-Backed Securities Loan Facility (TALF). In June 2009, the TALF made lending available to private financial market participants against their holdings of existing commercial mortgage-backed securities (CMBS), thereby increasing liquidity in the CMBS market.
Experience in previous business cycles suggests that recovery of the sector will lag the economy as a whole.
You think the housing mortgage securities being traded in the market, was used to pass the risk to new buyer of the security Freddy Mac /Fennie May in lot of cases. Do you think the Federal needs a tool to check this in future.
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