US Housing Market – Bottom or Another Collapse?

Last few months, I saw a rash of positive housing data. The improvements in the Case-Shiller index followed the release of several equally optimistic government reports that showed increases in home sales and housing starts and a decline in inventories.

But I still in dilemma when unemployment rate soaring and rising mortgage rates could lead to a double-dip plunge for the housing market. We still have a ton of foreclosure inventory coming into the market.

The federal government’s effort to lower borrowing cost has been a big reason why the housing market has been able to stabilize over the past few months. Mortgage rates fell to a record low 4.78% in April. But now it appears the Fed’s effort to reduce borrowing costs is losing momentum, when the rates have increased in each of the past two weeks and demand for mortgage applications is beginning to wane.

In Bernanke’s Seminannual Monetary Policy Report to Congress, he indicated that the refinancing acitivity was somewhat elevated early in the year, probably due to low mortgage interest rates and the waiver of many fees and easing of many underwriting terms by the government sponsored enterprises. However, such activity moderated considerably when interest rates rose during the past few months.

Some 467,000 jobs were lost in June alone and about 6.5 million jobs have been lost since the recession began in December 2007, according to the Labour Department. Over the coming months, as many as 1.5 million jobless Americans will exhaust their unemployment insurance benefits, ending what for some has been a last bulwark against foreclosures and destitution. Unemployment insurance is a lifeline for 9 million Americans with payments averaging just over $300 per week, varying by state and work history. If more help is not on the way, by September a huge wave of workers will start running out of their critical extended benefits and many will have nothing left to get by on even as work keeps getting harder to find.

We remain oversupplied, with approximately 1 million ‘excess’ housing units for sale. More foreclosure inventory will likely hit the markets in the coming months too. Many of the filing moratoriums put in place at the state and industry levels have expired.