In the U.S.A. the housing market drives the economy. A home is by far the largest purchase most people ever make. After the home purchase is made people typically buy additional furnishings, appliances, decor, etc. All of these puchases drive the retailing industry – one of the biggest sectors in our economy. So when the housing market declines – the retailing industry goes with it, taking along with rest of the economy.
A recent article at “The Big Picture” by Barry Ritholz details two facts that indicate underlying systemic reasons why the housing market will continue to decline driving our economy further south yet again..
First he notes, “2.8 million Americans are 12 months behind or more on their mortgages.” This means almost 3 million homes will be coming onto the market from foreclosure. This will add to the current glut of homes for sale along with those waiting to go on the market (the shadow supply). Because these are foreclosed home, it also means that these same homeowners will not be able to purchase another home. No longer homeowners or buyers – they will be entering the rental market.
Second he writes, “Since 2007, 19% of all borrowers (~9 million borrowers) have gone more than 90 days delinquent on their mortgages, or have had their mortgage liquidated.” This group will not be qualified to apply for another mortgage for many years. This means that nearly one in five borrowers (since 2007) no longer qualifies for a mortgage. The pool of homebuyers has declined dramatically. Further shrinking this pool of buyers are aging baby boomers. As baby boomers age and retire, they too are no longer buyers of large, pricey homes or homes in general.
Lack of buyers will make it even more difficult for existing homeowners to sell for possible employment opportunities elsewhere – further dampening employment. The American dream of homeownership has become, for many, an experience similar to driving with your emergency brake on – grinding down the engine & tires of family assets and guzzling resources.
So a rapidly inflating housing inventory combined with a rapidly shrinking pool of buyers will force home prices to new lows – putting more home owners underwater. I can hear the brakes of the non-existent homes sales screetching as the economy teeters on the edge of yet another cliff.
Who’s most vulnerable in all of this? Those without access to government safety nets – mainly women and children.
