Housing Recovery: Long Way Off

It is going to be very difficult for the U.S. economy to turn a significant corner without a housing market that is at least stable. Amazingly, the housing situation has not improved much at all during 2008, even as builders halt new construction and slash prices on newly built inventory. Increases in foreclosures have completely negated any of those builder actions. As you can see, home inventories remain elevated and have just been treading water all year, well above historical averages.

The Treasury Department is thinking about trying to get mortgage rates down to 4.5% from the recent 5.5%-6.5% range. Will that help the housing market recover? I doubt it (interest rates aren’t the problem). How many people can’t afford to borrow money at 5.5% to buy a home, but could do so with a 4.5% rate? Not many, I suspect.