Q: Home sales in my neighborhood are really slow, and prices are down a little bit from where they were several months ago. When do you think that the market will get better?
I think that the nation's housing market is finally bottoming out, but that most parts of the country won't see any major improvement in sales or prices until the second half of 2008 - or even the start of 2009.
I've received a number of letters like yours in the past several weeks, so I'm devoting this entire column to answering some of the most common questions as part of my annual housing-forecast column.
Q: What triggered the current housing slump?
A: There are a number of factors. For starters, prices in many areas doubled or even tripled between 2000 and 2005. The prolonged price run-up pushed housing-affordability levels to record lows, which gradually knocked millions of buyers (especially first-timers) out of the market because they could no longer qualify for a mortgage. The dwindling number of buyers then resulted in a nationwide decline in both prices and sales that began around the start of 2006 and continues today.
Another factor in the downturn: Many of the loans that were made during the past few years were given to buyers with below-average credit scores and with small down payments. So when prices stopped rising about two years ago, many of those buyers simply decided to stop making their monthly payments because the balance of their mortgages were higher than the values of their houses.
Foreclosures then began to mount, and the number of homes for sale by both private sellers and banks rose, which depressed values further - even for those longtime homeowners whose steady payments through the years had helped them earn a perfect credit rating.
When you add to this nasty mix the sluggish economic growth and massive layoffs that we've seen in the past couple of years, big swings in mortgage rates and a Congress and president who have spent the past several months bickering over the different methods to help troubled borrowers and ailing lenders - well, you've got all the ingredients for the "perfect storm" that struck our nation's housing markets about two years ago and still wreaks havoc today.
Q: Considering all these problems, why do you think that things will get better in 2008?
A: That's in part because lenders, Congress and the Bush administration finally now seem to be taking the crisis seriously. Some banks recently have agreed to provide interest-rate help or other aid to troubled borrowers facing foreclosure, which should help reduce the number of homes for sale across the country and eventually prop up prices for everyone. Lawmakers and the president also are arguing less and instead concentrating on pushing a comprehensive package of tax changes and other measures that also should improve market conditions.
Perhaps more important, the interest-rate-setting Federal Reserve is taking a more active role in cutting rates to spur the economy.