LINDA WERTHEIMER, host:
The U.S. housing market is not likely to crash, but it is entering a long period of stagnation, and the news is not good for buyers or sellers.
That's according to a study published this week by Harvard University's Joint Center for Housing Studies. Nicolas Retsinas is the Center's director, and he joins me now. Good morning.
Professor NICOLAS RETSINAS (Director, Harvard University's Joint Center for Housing Studies): Good morning.
WERTHEIMER: With real estate prices not moving up as fast as they have in the past few years, we're heading into a buyer's market. But still, lots of people feel they can't afford to buy. Now, why is that?
Prof. RETSINAS: The market has changed. It was clearly a seller's market, and now buyers have more options. So price appreciation is slowing. At the same time, it's unlikely that prices will fall precipitously. And compounding the problem of potential buyers are rising interest rates.
WERTHEIMER: Is this a regional thing? Is there a shortage of affordable housing that's more acute in some places than others?
Prof. RETSINAS: Well, you're right. There are some parts of the country, Linda, where prices are still going up. But overall, prices are moderating.
WERTHEIMER: So if you've kind of had it in mind that you're going to sell your house and make a windfall, have you missed the boat?
Prof. RETSINAS: Depends how long you've had your home. If you've had your home for, say, the last three, four, five years, you've made a lot of money. Well, tomorrow you won't necessarily be much richer than the day before, but that doesn't mean you will have lost money.
WERTHEIMER: If prices are going down, though, you're still not predicting a crash. You're talking about a soft landing.
Prof. RETSINAS: Right. We did some research, looking at when in our recent history prices have gone down substantially. That is, nominal price declines of at least five percent, and we found that two factors that are most related to that are overbuilding and oversupply of homes, and job losses.
Well, there are parts of the United States where there has been some overbuilding, but, overall, it has not been widespread. And secondly, our economy continues to produce jobs, so there haven't been widespread job losses.
Absent those two factors working together, we don't think there'd be a precipitous price correction.
WERTHEIMER: What do you think the effect of the housing slow-down will be overall on this economy?
Prof. RETSINAS: Well, it certainly won't provide the boost to the economy it has. We've had such a run of refinancing and home equity loans and transactions. All of that puts money at the consumers' pockets, and we know consumers spend money when it's in their pocket. So consumer spending is likely to slow.
Business spending is up, so that will offset some of that. But clearly housing will not provide that boost to the economy that it's had over the last four or five years.
WERTHEIMER: What about the longer term? Are you optimistic or not?
Prof. RETSINAS: Well, we are relatively bullish over the long term, because we think a key predictor of the housing market is the rate of household formation. That is, how many households do we form? And according to our projections over the next ten years, we'll form about two million more households than we did over the previous ten years. That suggests strong demand.
There continue to be, in many markets, restraints on supply, and as a result we think, over the long term, the housing will rebound and prices again will start to go up.
WERTHEIMER: So you're talking about the children of the baby boom get married and move into houses.
Prof. RETSINAS: Eventually, they will. And the other thing that's happening, of course, is we still have the residue of an incredible amount of immigration over the last five or six years. And the immigrants who came in yesterday are going to be the homebuyers of tomorrow.
WERTHEIMER: Nicolas Retsinas, thanks very much.
Prof. RETSINAS: My pleasure.
WERTHEIMER: Nicolas Retsinas is Director of the Joint Center for Housing Studies at Harvard University.
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