(By Bearemy Glaser) The rise and fall of the housing market was one of the more spectacular bubbles of recent memory. And the bursting of that bubble is still having a profound impact on the economy, even though we're now several years past the peak. Yet, it doesn't look like housing prices will be bouncing back anytime soon.
Last week, I examined the perfect storm of factors that led to the incredible inflation of housing prices and some of the reasons housing prices have fallen back to earth. Although I do believe that prices have stabilized, there are many headwinds that will make it hard to see impressive gains coming anytime soon. This week, we will look at six reasons why demand isn't likely to pick up.
Even though the employment situation has improved, many people are still without jobs and even more are underemployed. People without jobs generally don't buy homes. And the uncertainty created by the rocky jobs situation also keeps buyers on the sidelines. Before deciding to take the plunge and buy a home and be tied to one city, buyers want to be sure they have good job security and a stable income.
Even those with jobs who are afraid of layoffs aren't terribly likely to make a bid on a property. They are much more likely to rent or live with relatives and wait until they have more confidence about the job market before thinking about buying. Until there is a robust recovery in the job market, not just one in corporate profit, there won't be big housing-price increases.
2. Household Formation
A big driver of the housing market is the creation of new households when young people go out on their own or through other vectors such as divorce. More young people are finding the working world increasingly hostile and are choosing to live with their parents in order to save money or to have an inexpensive base to search for a job. Even more people who might prefer to live alone are finding roommates or sleeping on couches. Now of course many young people aren't necessarily going to find their first job and then immediately buy a home, but they do represent future buyers. The longer household formation remains depressed, the longer it will be before demand begins to rise again for houses.
Lower divorce rates also have an impact. It's unlikely that the recession created a lot more marital bliss. What is likely is that it has become financially very difficult for unhappy couples to split up. It may be impossible to sell the home, or one partner might not feel secure enough to venture out on his or her own. This might reverse quickly, but it is having a detrimental impact on demand at the moment.
Outside of Americans creating new households, another potential demand from housing is from immigration.