In previous economic cycles, one of the leading economic sectors that was both a leading economic indicator and stimulator of the economy and jobs has been the housing sector.
“Housing Starts” was the keyword used as a leading economic indicator. In most recoveries, housing was a big factor in the recovery, expansion and creation of job. Not this time.
During this recession and very slow recovery, the housing sector has been not just neutral, but a drag on the economy. Two of the major two components causing the housing sector to remain in hibernation, are the lack of availability of credit, business loans and foreclosures, which have caused new housing stats to remain very low.
In July of 2005, new housing starts were approximately 2 million in the one month, and approximately 400,000 in July of 2011. Private institutions remain restrictive in their real estate lending practices, requiring a high credit score, often 725 – 750 or higher, verified income and substantial down payments. If the applicant is self-employed and taking significant write-offs off the top of their gross receipts, their prospects are very dim, at best.
The other significant obstacle that does not appear will go away anytime soon, is foreclosures. The most recent statistics have foreclosure inventory levels at between 3-6 years as the amount of time it will take to go through and delete the foreclosure homes before the levels are back to historic averages.
The presence of these inventories plays like a domino effect. Many prospective buyers will seriously consider actively looking at, and buying a foreclosed property, as they can buy it for considerably below the regular cost of the home. When the inventory of foreclosed homes is very high, and homeowners who are not in foreclosure need to sell, regular sellers have to price low to compete for buyers who will have lower priced foreclosure homes to choose from.
This keeps the prices of newer homes low, and considerably softens the new housing market. New home developers know they are up against both lower foreclosure and used home prices, as well as tougher lending restrictions, making it harder for the buyer to obtain financing, causing new home starts to be almost completely stalled in many areas of the country.
Many buyers simply cannot resist the presence of extremely low priced homes in foreclosure and very competitively priced used homes, and will forego paying for a new home.
It will take time for the foreclosures to be sold and numbers to go down. In the meantime, for these reasons, this sector is not expected to be a significant creator of jobs.
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