Housing Market is shrinking

Diana Olick says: The housing market is shrinking

The foreclosure headlines today are that one third of all home
sales in Q2 were of distressed properties (foreclosures and short
sales). The discount on those homes from comparable
non-distressed properties was 32 percent. What the headlines
don't say is that while the percentage of the market that's
distressed rose from a year ago, from 26 to 31 percent, the
actual number of distressed sales fell. The share only went up
because the number of non-distressed sales fell, leaving the
total pool smaller. And there's the biggest problem in housing
today. Sellers are afraid to put their homes on the market for
fear of losing too much equity, which means there are fewer
potential move-up buyers.

First time buyers are choosing to rent in droves, as unemployment
and the wider economy recover far more slowly than expected.
This, despite the fact that, nationally at least, it now costs
about the same to rent as it does to own. Just look at where the
mortgage payment-to-rent ratio has gone over the past few years.
Rent, as a percentage of income, is rising and household
formation is slowing at an alarming rate, eating into that
much-needed first time home buyer demand. The pipeline of
troubled loans is still huge, 4-5 million homes, and
unfortunately new delinquencies are on the rise again. And then
there's this problem: Households are getting bigger, as the
current tough mortgage market spurs more multi-generational
living. Households had been getting smaller over the past
decades, despite population growth. That was great for housing,
because it meant more demand. "A one tenth of a percent increase
in people per household would wipe out three years worth of
population- and immigration-driven household growth," according
to Green Street Advisors. That appears where we're headed. What do you think?