Why the housing market hasn't recovered
Sign outside a house in Pasadena, Calif. indicates a reduced sale price
Jeremy Hobson: Later this morning, we'll find out from the federal government what happened to home prices last month. The housing data we've gotten so far this week has show some evidence of an improving housing market. But things remain well below the levels economists consider to be healthy.
For more Let's bring in Marketplace Economics Correspondent Chris Farrell. Good morning.
Chris Farrell: Good morning, Jeremy.
Hobson: Chris, why is the housing market still stuck, even as the rest of the economy seems to recover?
Farrell: The housing market is in the depression. Prices are still coming down; in fact, the price declines have accelerated over the past three months. And by the way, Jeremy, who wants to buy a home? Who wants to put money into anything if you know the price is going to continue to go down?
Farrell: So people sit on the sidelines. And what's driving the prices down? It's mostly foreclosures. Short-sales. People needing to walk away from their homes. And about 27 percent of homes have negative equity or near-negative equity. And these are the types of properties that might go into foreclosure, might go into short-sale.
Hobson: Twenty-seven percent. And Chris, obviously there's a lot of uncertainty in Washington as well about what's going to happen to the mortgage deduction, what's going to happen to Fannie and Freddie. How is that figuring in to people's calculations about buying and selling houses?
Farrell: Washington is a deadweight on the housing market. Mortgage lenders have tightened their standards, so it's a lot harder to qualify for a mortgage these days. And one of the reasons is that Fannie Mae and Freddie Mac, they've tightened their standards, so it spilled over. And then there's, as you mentioned, all the uncertainty about what's the future of these two giant institutions that have been so important to this market and supporting the market. And then as whole discussion about the budget deficit goes ahead, you know, in the coming months, I've got to tell you: that mortgage interest deduction? It's going to be a big point.
Hobson: Absolutely. Now what could possibly put some upward pressure on the housing market?
Farrell: I think it's a combination of two things. First of all, homes haven't been this affordable for 40 years. So you know, that news is going to get out there. And then when people feel more comfortable taking a risk -- and here's my standard: it's basically jobs. People are getting jobs, unemployment rate goes down -- that's a good thing. But even more importantly, when people feel more comfortable to take the risk to leave their current employer? They're going to be comfortable taking the risk to buy a home.
Hobson: It always comes back to jobs. Marketplace economics correspondent Chris Farrell, thanks so much.
Farrell: Thanks a lot.