The Housing Bust Continues

by Jack Lee

We were told that real estate was at the bottom and would be recovering in 2012, now that has been moved to 2013. We’ve had five straight months of significant decline in home valuations and a few hours ago Zillow reported that American home values are likely to shed $681 billion this year. That’s better than the $1.1 trillion lost in 2010, but hardly worth celebrating. The still large pool of distressed housing and new home supply is dragging down consumer confidence. So is high unemployment. There are still too many people wondering if they should walk away from a negative equity in their home and that too will continue to put downward pressure on the housing market.

We’ve got a fair number of people buying up those distressed properties and that’s a good sign, because we’ve got to clean up that inventory. So, what else is causing the hold up? The problem is right in front of you, it’s our changing demographics. One of the major things that contributed to the bonanza in housing for decades was the baby boomers and their kids. But, boomers are in retirement and their kids are not far behind. This huge segment of our population bought up all the McMansions we could build, but not anymore, now they’re downsizing.

People of all ages have seen their 401k’s turn into 201k’s in recent years. The stock market bust in utilities wiped out a lot of retirement savings. This was followed by the dot.com bust. Then that fiasco was followed by an across the board plummet in the Great Recession. All of this has taken it’s toll on American pocketbooks and consumer confidence.

Currently, pump prices have consumers on the ropes again and that little bit of disposable cash is not being spent. Spending is what the government has been doing to jump start our economy, and its caused us serious concerns about carrying too much debt. This is why consumers are wary of worse to come. This is why they are not out buying new cars and they are certainly not ready to move up to bigger and more costly homes. Who wants to raise your utility bill in a bigger house…raise your hands? Yeah, that’s what I thought.

It’s the demographics folks, globally and locally. We’re in a declining birth cycle and the home buying generation now is not as prosperous as the boomers. Many nations wondering how they’re going to fund the expensive social mandates for the retiring generation when they also have declining population. Safety nets were built on the false premise that we would have more people in each successive generation and that would fund healthcare and retirements, but that was a ponzie scheme – it had to fail sometime. Well, that time is now. This is our new reality and now you know why the homes prices are not recovering.