The Housing Market Finally Bottoming Out?
Data from the last few months shows signs that the housing prices may finally have stopped falling, at least in most parts of the country. While the housing market appears to have reached some sort of equilibrium between supply and demand for the time being, it may take quite some time for prices to rise once again.
What has many economists concerned is how unemployment, which is expected to rise to the end of the year, will affect the current dynamic. The length of the recession will also play a large part and many parties are holding out hope that the worst is over.
There are several factors that will determine how the housing market plays out, most importantly interest rates. How long can the Fed keep mortgage rates below 5% or near that level will be a major factor in how quickly demand returns.
Another factor is the status of the banking system and whether it will be able to fuel this demand, if and when it starts to pick back up again. The Treasury is still finishing up it’s stress test for the banking system so it will be a little time before we know more fully the capital situation of the nation’s largest banks.
How inflation plays out will also determine how long the Fed can keep rates this low. Also, once the government starts flooding the market with it’s new massive debt load, we will likely see yields rise.
Treasury yields and the spreads between it and other rates are really what matters most. If Treasuries start to fall and yields go up, other rates are likely to rise in concert.
Unless the Fed is willing to commit to buy more Treasuries once again, rates can’t help but rise since yields right now are pretty much nonexistent. But when the Fed buys Treasuries, that releases more money into the system and will fuel inflation concerns once again.
It is a delicate balancing act the Fed will have to play in order to navigate the housing market to recovery and it could take quite some time.
