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Jeremy Hobson: Later this morning, Freddie Mac will tell us what the average interest rate is right now on a 30-year fixed mortgage. Last week, the rate fell below 3.5 percent for the first time in 60 years of record keeping. Add that to the growing chorus of people who are saying the housing market has finally hit bottom, and you might think a housing recovery is near.
Marketplace economics correspondent Chris Farrell joins us now with his take. Good morning.
Chris Farrell: Good morning, Jeremy.
Hobson: So Chris, do you think that the housing market has hit bottom, as many people are saying right now?
Farrell: I believe it has hit bottom. But here’s the thing, Jeremy: Don’t believe those real estate agents when they say it’s hit bottom and it’s going to rebound. The market is going to be flat for a long time to come.
Hobson: Wait, so you think that it’s hit the bottom but it’s not going to start to come back up again?
Farrell: That’s right, because for one reason, I just don’t see a lot of net new household information, which is a big driver in the housing market. It’s been running at about $600,000 to $800,000 for the past couple years. And Jeremy, we haven’t seen numbers this low since the 1940s, and I don’t see it changing any time soon.
Hobson: But the economy is slowly getting better — slowly but surely, job growth is coming back, albeit at a weaker pace than many would like. But also, you’ve got mortgage rates at very low levels. Why wouldn’t the housing market start to rebound?
Farrell: The reason why there’s less household information is lots of young people are living at their parents’ basement. And you know, this economy’s doing better but it’s not doing great. There’s not a lot of great income growth, there’s not a lot of good jobs out there. So they’re going to move very slowly out of that basement. And then immigrants, immigrants are big buyers. They want a stake in this country, but immigrant buying has really fallen, and I don’t see that changing any time soon either.
Hobson: What’s it going to take then, Chris, to get this housing market to rebound?
Farrell: People are looking so much at the housing market and they’re forgetting to look at the other side of the equation: income growth. So yes, house prices are down 35 percent since the bubble burst, but there’s been no real growth in income. In fact, median household income, real median household income adjusted for inflation is down by more than 8 percent over the last decade. So we need to see some real income growth before people start thinking housing is affordable.
Hobson: Marketplace economics correspondent Chris Farrell, thanks as always.
Farrell: Thanks a lot Jeremy.