by R. M. Gardner

Created on: July 02, 2008

While real estate markets tend to be geographic, as a whole I believe it's unlikely the overall U.S. housing market will rebound any time soon. Of course it will eventually and I firmly believe there's no better investment vehicle than real estate, but for the time being and the foreseeable future, there will be little if any improvement.

I base this on a few observable facts:

1). Demand, as of today the housing market is in a poor state and we all know it. A key component of course is demand, without demand there is no sale and if there is no sale there is no market. There is an economic principle that states demand controls pricing. Without demand it doesn't matter how cheap an item is because nobody wants it, nor does it matter if that commodity is in short supply, again if there's no demandyou get the idea. So why is there no demand? One factor can be attributed to the housing market still being over priced. This of course means that today's housing prices have to come down even further before people will be ready to buy.

Another reason for low demand can be attributed to the poor lending and borrowing practices over the past few years. Borrowers financially over extending themselves, fraudulent lending practices, investor greed, all of which has lead to a record number of foreclosures when the bubble burst, but what does it all mean? Simply put, the pool of potential borrowers that today could qualify for a home loan and thereby exert a demand on the housing market has been significantly reduced.

2). Supply, while demand comes first in the economic equation supply does play a factor, so what is the supply? Well basically there's a glut in the market. Before the housing market can turn around some of this excess inventory needs to be exhausted. Not a shortage per say but another economic principle dealing with demand/supply equilibrium. The playing field between demand and supply has to be leveled. I think there are three pools of housing inventory we have to look at, new development, foreclosure, and a routine market inventory that deals with the day to day buying and selling of existing properties. The surplus of new development and foreclosed inventory needs to significantly decrease before the overall housing market can turn around. After all, these cheaper deals have the potential to keep our diminished pool of eligible borrows out of the routine housing market for at least a couple of years and therefore keep the overall housing market depressed.

3). The economy, no argument for why the housing market will stay depressed would be complete without pointing to the state of the U.S. economy; record breaking gas prices, weak U.S. dollar, and a rising unemployment rate up one percentage point over the past year (May 2008). Combine this ugly economic picture with an uncertain future as we get ready for a new President in 2009. With so much uncertainty in the air it's hardly surprising many potential borrowers are sitting on the fence waiting to see what's going happen. Unfortunately with no quick fixes to the challenges mentioned, those folks might be sitting on that fence for quite some time.

The housing market will turn around eventually, history has proven this. Will it happen soon? I don't think so; there are just too many negative factors that our economy has to deal with first. But even when considering worse case scenarios remember one fundamental truth, nobody is making any more land.

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