The real estate market continues to show little signs of life. Despite record-low mortgage rates and a collapse in home prices, builders see little demand for new homes due to the record-high overhang of existing homes on the market, including the record-high level of foreclosed properties (4.29% of all active loans) which have continued to gain most attention from buyers due to much lower prices.
Even more disturbing is that the fact new foreclosures are outpacing foreclosure sales by a factor of 3 to 1. This means that the existing home inventory due to foreclosures is growing by 3 times the rate of foreclosure sales.
But there may be some relief in sight for the rapid flood of foreclosed properties hitting the market. Due to the robo-signing and foreclosure gate scandals, foreclosures are setting new records in with respect to the time it takes for these properties to be processed through the legal system. The average loan in foreclosure has now been delinquent a record 631 days.
To some, it would appear that the easiest way to save a good deal of money would be to simply stop paying their mortgage (and property taxes) and live rent free for a couple of years.
Economists insist that a healthy housing market is the key to an economic recovery because it creates jobs. After previous recessions, housing accounted for at least 15% of economic growth in the United States. Since the official end of the recession in June 2009, it has contributed only 4%. Economists have pointed to this data to explain why the economy shows no signs of recovery.
Economists look closely at new homes sales even though these sales only comprise 20% of the total because new home construction is thought to have a much larger impact on the economy. According to the National Association of Home Builders, each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue.
Although we here at AVA Investment Analytics feel this claim is exaggerated, the more important issue is that a healthy real estate market does not lead to a truly healthy economy unless such an economy. A healthy real estate market is a consequence of a healthy economy because homebuyers need good stable jobs to afford a home. Robust creation of good jobs holds the key to a healthy economy.