When will the housing market rebound?

There’s still downward pressure on the housing market right now. And that pressure might get worse before it gets better. Here’s why.

Trying to peg the bottom in home prices is like playing a game of pin the tail on the donkey. We’ve got a rough idea where we’re trying to go, but finding the right spot is, in the end, a matter of luck. There’s still downward pressure on the housing market. And that pressure might get worse before it gets better. Here’s why:

“The biggest bubble in history.” I think Americans are still struggling to wrap their minds around the size of the global housing bubble. From 2000 to 2005, home prices rose more than 100 percent. That prompted The Economist to dub the housing market “the biggest bubble in history.” “Not only does this dwarf any previous house-price boom,” the magazine wrote at the time, “it is larger than the global stockmarket bubble in the late 1990s (an increase over five years of 80% of GDP) or America’s stockmarket bubble in the late 1920s (55% of GDP).” Prices went far too high, far too fast. When the dotcom bubble started collapsing in 2000, the Nasdaq spent two and a half years shedding 76 percent of its value. Eleven years later, the Nasdaq still hasn’t come close to re-touching the highs hit during the height of the bubble.

Supply and demand. There are just too many houses on the market for a recovery to take root. “At the current pace, it would take about seven months to sell all of the newly built houses on the market, and eight months to sell all of the existing homes on the market,” NPR reports. “In an ordinary market, it would take about six months to sell all of the homes on the market.” There are more than twice as many homes for sale as there should be, and a new string of foreclosures are expected to flood to market in the wake of the robo-signing scandal that imposed a moratorium on foreclosures late last year.

Home prices will also face headwinds as interest rates rise and the government begins winding down the tax credits and loan guarantees that made buying easier. The moral? Housing prices still face an uphill battle. The bottom could come late this year or in 2012, but that doesn’t mean we’ll see prices heading back to the 2007 peak. Just as the Nasdaq hasn’t returned to its dotcom bubble glory, it could be decades before we see re-touch the highs we saw in housing. We are, after all, trying to get our bearing after the biggest bubble in history. Stabilization should our goal – not returning to the prices we saw in 2007.

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