Housing Expert: Market Won't Mend For Some Time
Now for some perspective we've turned to Professor William Wheaton, MIT economist who watches the housing market. Welcome to the program once again.
Professor WILLIAM WHEATON (Economist, MIT): Thank you very much, Robert.
SIEGEL: We just heard from a real estate broker in Manassas, Virginia, who figures they saw the bottom there and things have bounced back to nowhere near where they were before, but not as low as they got. And earlier we heard from the county assessor in Contra Costa County, California, who says it's pretty miserable out there.
First of all, which describes more closely the housing market to you nationally?
Prof. WHEATON: Neither. There's an old saying that the mean is never achieved. The average house is we don't really own them, right? We own houses above and below the average. So I would say it's a combination of the two.
SIEGEL: What, to you, accounts for this pretty terrible report on housing sales for last month?
Prof. WHEATON: Well, there actually was a little bit of a silver lining. The bad news was that sales dropped 25 percent. The good news was that the inventory of units for sale was basically stable. And the way we look at it, that means that most of the withdrawal of sales came from existing owners who were trying to move from one house to the next, from one part of the country to the next.
If the withdrawal of sales had come from first-time buyers or investors, then we would've seen the inventory of units climb quite sharply. So I think it was mostly existing owners who sort of, you know, put themselves on the sidelines for the last month, quite possibly because of the withdrawal of the tax credit, but also because the labor market is so tenuous and difficult at this point.
SIEGEL: These are uncertain times. It's a tough time in which to make a big commitment to a home.
Prof. WHEATON: That's exactly right.
SIEGEL: I read one forecast for the coming year from Goldman Sachs. It came out last month. They say, given the supply of houses out there, they would expect prices to decline by another 2.5 percent over the coming year.
Prof. WHEATON: I think that's entirely realistic. I would expect that prices actually won't do very much of anything. I don't think they'll take a certainly won't take a big run up and might fall a couple percentage points. None of that's going to be very catastrophic or very optimistic, either way. I think we're really pretty close to the bottom. But it could be a long slog along the bottom.
SIEGEL: What does all this say about what has been a very basic economic and social policy objective for the U.S. to increase home ownership? Are we at a point now where people are looking at renting and perhaps at how often they might have to move to find a new job over the course of their working lives? And, say, you know, renting makes more sense. It's a better deal.
Prof. WHEATON: Well, I think that's very important because if you look at the rental market, it really stands in pretty stark contrast to this morning's report on the ownership market. In the last two quarters, the vacancy rate in apartments has fallen from seven percent down to five percent. Rents have firmed and started to rise. And, of course, you have to remember rents didn't fall very, very much. They moved quite differently than prices.
In the last 12 months nationally there were 830,000 new renters, whereas we lost 40 or 50,000 owners. So the rental market looks to be quite strong and, of course, it's benefitting from the enormous number of people moving from own back to rent.
SIEGEL: Have you seen any creative idea out there about this whole equation people, homes, ownership, renting, whatever, that might seem to be a path for us to get out of this depressed market?
Prof. WHEATON: Well, there are some interesting ideas in the short run. One idea I really like is for banks to write down mortgages to something near what properties are actually worth. This is for people that financed or bought a house at the peak and now prices have fallen considerably. So banks have refinanced those mortgages at a much lower rate. And then they would take a share of any equity when those houses sold.
CONAN: So, the bank ceases to be simply your creditor but its also your partner to some extent?
Prof. WHEATON: Thats right, your equity partner. That would free up people to move. I think some idea like that is really needed at this point.
CONAN: Professor Wheaton, thanks a lot for talking with us.
Prof. WHEATON: Delighted.
CONAN: William Wheaton is an economist at MIT.
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