Full Housing Sector Recovery Still Far Off

By Kyle Chezum Updated on 6/13/2011

 

Home prices are still higher than they have been historically, which leads many economists to conclude that the housing crisis isn't over just yet.  A look at the bubble prices of the past ten booming years in real estate shows a dramatic increase that still hasn't fully leveled out despite recent home price decreases.

The first time home buyer tax credit last year as well as the Fed's quantitative easing have held down mortgage rates in various ways for a while now, and the real estate market has not yet had the opportunity to fully reconcile itself without massive amounts of government aid.  This will take time, and it will take some getting used to.  Home prices also need to drop another 15% or so before they reach the levels projected.

Interest rates have continued to decrease, however, despite the gradual removal of government assistance.  But while low mortgage rates brought a slew of refinances late last year, it hasn't had such a profound effect on the mortgage marketplace yet in the current year.  Rates have dropped continuously for the past eight weeks, and 30 year fixed rate loans are going for about 4.49% at present, according to Freddie Mac.

The past several decades have seen a gradual decrease in interest rates, and this decrease has made owning a home considerably more affordable.  To compensate for this, during the bubble years, prices rose dramatically.  We may have reached a point in which the housing market once again becomes a difficult market to enter into with high financing costs and comparatively expensive monthly payments.  At best, a recovery in which both prices and interest rates are low and consumers are able to readily buy homes is still far off.