America's 10 Sickest Housing Markets

By Charles B. Stockdale, Douglas A. McIntyre and Michael B. Sauter

For three years, the real estate market has been going in one direction — primarily down. Some areas, however, have begun to recover. Recent S&P/Case-Shiller data show that among the top 20 housing markets in the U.S., 18 had very modest improvements in sales prices during May. Others, like Washington and Boston, have began to at least stabilize from a year ago.

More from 247WallSt.com:

• 10 Signs The Double-Dip Recession Has Begun

• The Countries With the Fastest-Growing Populations

• States Where People Pay the Most (and Least) in Taxes

Few markets, however, can match Washington and Boston. Robert Shiller has been stating that home prices could fall another 10% in the next year. Inventories in some major metropolitan areas would take years of sales to get back to 2005 levels. Then, the normal inventory of homes for sale was replaced on average every six months and it was unusual for a house to be on the market for a year. Foreclosure rates remain high and only the robo-signing scandal has slowed the process. Once this is resolved, economists fear the market will be flooded with even more vacant, unsold homes.

24/7 Wall St. has taken a new look at the housing market to find the very weakest cities by identifying those with the highest homeowner vacancy rates and rental vacancy rates. These are markets where demand has clearly collapsed. These are cities where the requirement for living space has dropped well below the national average. Further, vacancy rates of many cities were stable during the recession, but accelerated sharply higher in the last year. Similarly, housing prices in several of these markets have decreased at a faster rate in the last three quarters than during the recession. These cities, like Detroit, St. Louis, Dayton, and Atlanta, also tend to be larger and older among the top 75 metropolitan areas. Their economies were damaged long before the recession.

Methodology: 24/7 Wall St. pulled Census data on the 75 largest U.S. metropolitan areas and ranked the cities with the highest overall vacancy rates for both homeowner vacancy and rental vacancy for the second quarter of 2011. We picked the cities with the worst rates in each of the two categories to create meta-data ranks. We then removed the cities that had either improved homeowner vacancy rate in either the last twelve months or the last quarter. We believed that any sign of improvement in homeowner vacancies, the more telling of the vacancy rates, should disqualify a city. To improve our analysis, we also looked at unemployment rates for these cities provided by the Bureau of Labor Statistics. We also used historical median home prices, as provided by the National Association of Realtors.

The analysis shows that some cities have home vacancy rates over 5% and rental vacancy rates over 10%. Obviously, these levels of unused inventory have the effect of driving down both home and rental prices month after month. It also means that there is comparatively little demand for the purchase of new or existing homes. These ten markets are essentially dead as far as real estate prices and sales activity are concerned.

These are America's ten sickest housing markets.

1. Tucson, AZ
Homeowner vacancy rates: 6.8% (1st)
Rental vacancy rates: 15.9% (6th)
Total housing units: 440,909
Unemployment: 7.8%

Tucson's homeowner vacancy rate was 3.2% one year ago. It is now over double that. The city had a booming residential housing market before the crash. Since then, demand is so low that median home prices have dropped 18% in the past year and 33% since 2008. In addition, the city has among the highest rate of foreclosures in the country.

2. Indianapolis, IN
Homeowner vacancy rates: 5.2% (5th)
Rental vacancy rates: 13.5% (10th)
Total housing units: 757,441
Unemployment: 7.8%

The average home price has dropped by $20,000, or 15.3%, between the second quarter of 2010 and the first quarter of this year. Indianapolis's home vacancy rate of 5.2% is the fifth-highest in the country. Its rental vacancy of 13.5% of units is the tenth highest in the country. In 2009, while vacancy had not even reached its worst point, the mayor's office of Indianapolis recognized the serious problem the city faced. The city's plan to help solve the abandoned home issue states: "Indianapolis, like many communities, faces a significant challenge in dealing with vacant and abandoned properties. This challenge is exacerbated both by weaknesses in the local and regional housing markets — including an oversupply of housing relative to demand — and by the high and growing rate of foreclosures."

3. Memphis, TN
Homeowner vacancy rates: 4% (9th)
Rental vacancy rates: 13.5% (11th)
Total housing units: 550,896
Unemployment: 10.1%

Memphis's slow economic recovery has kept vacancy rates high. The metropolitan area's homeowner vacancy rate has increased from 2.5% in 2010 to 4% in the second quarter of 2011. In the city's defense, its rental vacancy rate has decreased from a staggering 21.2% in 2010 to 13.5%. This is still among the highest in the country, but it is an improvement. The unemployment rate remains at 10.1%, which is significantly higher than the national average of 9.2%.

4. Atlanta, GA
Homeowner vacancy rates: 5.4% (4th)
Rental vacancy rates: 11.8% (17th)
Total housing units: 2,165,495
Unemployment: 9.7%

Atlanta's homeowner vacancy rate of 5.4% is the fourth highest among major U.S. cities. The city, which had a significant influx of new residents, particularly from the northeast, has been hit hard. Atlanta's unemployment rate of 9.7% is well above the national average of 9.2%. According to the Atlanta Journal-Constitution, the city had lost nearly 25,000 jobs between June of 2010 and June of this year. Between 2008 and the first quarter of this year, homes have lost more than a third of their value, dropping in price by nearly $50,000.

5. Baton Rouge, LA
Homeowner vacancy rates: 3.9% (11th)
Rental vacancy rates: 13% (12th)
Total housing units: 329,729
Unemployment: 8.4%

Baton Rouge did not emerge from the recession unscathed, but it did perform better than many other cities in the U.S., in part because it is the state's capital city and in part because of the money brought in through Hurricane Katrina recovery work. However, according to one local news station, the area has built more housing structures than it could fill following Katrina. The city has not been able to break free of this situation, as both homeowner vacancy rates and rental vacancy rates have increased not only since last year, but since the last quarter as well.
By Charles B. Stockdale, Douglas A. McIntyre and Michael B. Sauter

For three years, the real estate market has been going in one direction — primarily down. Some areas, however, have begun to recover. Recent S&P/Case-Shiller data show that among the top 20 housing markets in the U.S., 18 had very modest improvements in sales prices during May. Others, like Washington and Boston, have began to at least stabilize from a year ago.

More from 247WallSt.com:

• 10 Signs The Double-Dip Recession Has Begun

• The Countries With the Fastest-Growing Populations

• States Where People Pay the Most (and Least) in Taxes

Few markets, however, can match Washington and Boston. Robert Shiller has been stating that home prices could fall another 10% in the next year. Inventories in some major metropolitan areas would take years of sales to get back to 2005 levels. Then, the normal inventory of homes for sale was replaced on average every six months and it was unusual for a house to be on the market for a year. Foreclosure rates remain high and only the robo-signing scandal has slowed the process. Once this is resolved, economists fear the market will be flooded with even more vacant, unsold homes.

24/7 Wall St. has taken a new look at the housing market to find the very weakest cities by identifying those with the highest homeowner vacancy rates and rental vacancy rates. These are markets where demand has clearly collapsed. These are cities where the requirement for living space has dropped well below the national average. Further, vacancy rates of many cities were stable during the recession, but accelerated sharply higher in the last year. Similarly, housing prices in several of these markets have decreased at a faster rate in the last three quarters than during the recession. These cities, like Detroit, St. Louis, Dayton, and Atlanta, also tend to be larger and older among the top 75 metropolitan areas. Their economies were damaged long before the recession.

Methodology: 24/7 Wall St. pulled Census data on the 75 largest U.S. metropolitan areas and ranked the cities with the highest overall vacancy rates for both homeowner vacancy and rental vacancy for the second quarter of 2011. We picked the cities with the worst rates in each of the two categories to create meta-data ranks. We then removed the cities that had either improved homeowner vacancy rate in either the last twelve months or the last quarter. We believed that any sign of improvement in homeowner vacancies, the more telling of the vacancy rates, should disqualify a city. To improve our analysis, we also looked at unemployment rates for these cities provided by the Bureau of Labor Statistics. We also used historical median home prices, as provided by the National Association of Realtors.

The analysis shows that some cities have home vacancy rates over 5% and rental vacancy rates over 10%. Obviously, these levels of unused inventory have the effect of driving down both home and rental prices month after month. It also means that there is comparatively little demand for the purchase of new or existing homes. These ten markets are essentially dead as far as real estate prices and sales activity are concerned.

These are America's ten sickest housing markets.

1. Tucson, AZ
Homeowner vacancy rates: 6.8% (1st)
Rental vacancy rates: 15.9% (6th)
Total housing units: 440,909
Unemployment: 7.8%

Tucson's homeowner vacancy rate was 3.2% one year ago. It is now over double that. The city had a booming residential housing market before the crash. Since then, demand is so low that median home prices have dropped 18% in the past year and 33% since 2008. In addition, the city has among the highest rate of foreclosures in the country.

2. Indianapolis, IN
Homeowner vacancy rates: 5.2% (5th)
Rental vacancy rates: 13.5% (10th)
Total housing units: 757,441
Unemployment: 7.8%

The average home price has dropped by $20,000, or 15.3%, between the second quarter of 2010 and the first quarter of this year. Indianapolis's home vacancy rate of 5.2% is the fifth-highest in the country. Its rental vacancy of 13.5% of units is the tenth highest in the country. In 2009, while vacancy had not even reached its worst point, the mayor's office of Indianapolis recognized the serious problem the city faced. The city's plan to help solve the abandoned home issue states: "Indianapolis, like many communities, faces a significant challenge in dealing with vacant and abandoned properties. This challenge is exacerbated both by weaknesses in the local and regional housing markets — including an oversupply of housing relative to demand — and by the high and growing rate of foreclosures."

3. Memphis, TN
Homeowner vacancy rates: 4% (9th)
Rental vacancy rates: 13.5% (11th)
Total housing units: 550,896
Unemployment: 10.1%

Memphis's slow economic recovery has kept vacancy rates high. The metropolitan area's homeowner vacancy rate has increased from 2.5% in 2010 to 4% in the second quarter of 2011. In the city's defense, its rental vacancy rate has decreased from a staggering 21.2% in 2010 to 13.5%. This is still among the highest in the country, but it is an improvement. The unemployment rate remains at 10.1%, which is significantly higher than the national average of 9.2%.

4. Atlanta, GA
Homeowner vacancy rates: 5.4% (4th)
Rental vacancy rates: 11.8% (17th)
Total housing units: 2,165,495
Unemployment: 9.7%

Atlanta's homeowner vacancy rate of 5.4% is the fourth highest among major U.S. cities. The city, which had a significant influx of new residents, particularly from the northeast, has been hit hard. Atlanta's unemployment rate of 9.7% is well above the national average of 9.2%. According to the Atlanta Journal-Constitution, the city had lost nearly 25,000 jobs between June of 2010 and June of this year. Between 2008 and the first quarter of this year, homes have lost more than a third of their value, dropping in price by nearly $50,000.

5. Baton Rouge, LA
Homeowner vacancy rates: 3.9% (11th)
Rental vacancy rates: 13% (12th)
Total housing units: 329,729
Unemployment: 8.4%

Baton Rouge did not emerge from the recession unscathed, but it did perform better than many other cities in the U.S., in part because it is the state's capital city and in part because of the money brought in through Hurricane Katrina recovery work. However, according to one local news station, the area has built more housing structures than it could fill following Katrina. The city has not been able to break free of this situation, as both homeowner vacancy rates and rental vacancy rates have increased not only since last year, but since the last quarter as well.

6. Dayton, OH
Homeowner vacancy rates: 4.7% (7th)
Rental vacancy rates: 10.7% (23rd)
Total housing units: 385,160
Unemployment: 9.3%

Dayton's home vacancy rate of 4.7% is the seventh-highest in the country among major cities. At one time, Dayton was a much larger city and an economic powerhouse. The Ohio city, which was a major manufacturing center, was at one point awarded more patents each year than any other place in the U.S. The city has a particularly bad unemployment rate of 9.3%. Median housing price, which stood at $109,000 in 2008, has fallen by 29%, or $27,000, between 2008 and the first quarter of this year.

7. Detroit, MI (Tied for 8th)
Homeowner vacancy rates: 2.4% (32nd)
Rental vacancy rates: 17.2% (3rd)
Total housing units: 1,886,537
Unemployment: 11.6%

The recession hasn't been kind to Detroit. Part of the Detroit-Warren-Livonia metropolitan area, it has been among the hardest hit cities in the country. Since 2005, the metropolitan area has lost approximately 323,400 jobs. Unemployment in the Motor City almost reached 30% in 2009. According to one estimate, the city had 90,000 abandoned or vacant lots or residential homes in 2010. One of the reasons the city is not at the top of this list is that the city had so many vacant properties that a huge portion of them were demolished. Regardless, at 17.2%, the rate of rental vacancy is still the third highest rate in the nation.

8. Kansas City, MO (Tied for 8th)
Homeowner vacancy rates: 3.7% (13th)
Rental vacancy rates: 11% (22nd)
Total housing units: 883,099
Unemployment: 8.4%

Kansas City's rental vacancy rate of 11% is the 22nd highest of any major city in the country, while its homeowner vacancy rate of 3.7% is the 13th highest. The city has a relatively high rate of unemployment, at 8.4%. While it's below the national average of 9.2%, it is well above the state average of 6.6%. The median home price in the city is down by $19,000, or more than 13%, since 2008. Most of that decline came in the last year. Between the second quarter of 2010 and the first quarter of this year, prices dropped by more than $25,000.

9. St. Louis, MO
Homeowner vacancy rates: 3.3% (19th)
Rental vacancy rates: 11.4% (18th)
Total housing units: 1,236,222
Unemployment: 8.6%

In 2008 and 2009, the St. Louis area has shed more than 82,000 jobs. This loss had a negative impact on the city's real estate market. Vacancy rates have continued to rise, increasing from under 2% one year ago to 3.3% in the recent quarter. The rise in vacancy rates has occurred while the median sales price for single family homes has fallen more than 19% since 2008. While rental vacancy rate, which is currently at 11.4%, has decreased slightly since the last quarter, it is still 1.6 percentage points higher than it was last year. St. Louis office vacancy rate is at 12.6%, according to real estate information company CoStar Group.

10. Oklahoma City, OK
Homeowner vacancy rates: 5.2% (6th)
Rental vacancy rates: 9.6% (34th)
Total housing units: 539,077
Unemployment: 4.9%

Oklahoma City had the sixth highest homeowner vacancy rate in the country as of the second quarter of this year. The city's unemployment rate is just 5.3%, but this low rate has not helped improve high home and rental vacancy. From last year, home sales in Oklahoma state dropped by 7.7%, according to the state's newspaper NewsOK. In the city, sales were flat from last year. Between the first quarter of 2010 and the first quarter of 2011, the median home price in the city dropped by more than 8%.

___

6. Dayton, OH
Homeowner vacancy rates: 4.7% (7th)
Rental vacancy rates: 10.7% (23rd)
Total housing units: 385,160
Unemployment: 9.3%

Dayton's home vacancy rate of 4.7% is the seventh-highest in the country among major cities. At one time, Dayton was a much larger city and an economic powerhouse. The Ohio city, which was a major manufacturing center, was at one point awarded more patents each year than any other place in the U.S. The city has a particularly bad unemployment rate of 9.3%. Median housing price, which stood at $109,000 in 2008, has fallen by 29%, or $27,000, between 2008 and the first quarter of this year.

7. Detroit, MI (Tied for 8th)
Homeowner vacancy rates: 2.4% (32nd)
Rental vacancy rates: 17.2% (3rd)
Total housing units: 1,886,537
Unemployment: 11.6%

The recession hasn't been kind to Detroit. Part of the Detroit-Warren-Livonia metropolitan area, it has been among the hardest hit cities in the country. Since 2005, the metropolitan area has lost approximately 323,400 jobs. Unemployment in the Motor City almost reached 30% in 2009. According to one estimate, the city had 90,000 abandoned or vacant lots or residential homes in 2010. One of the reasons the city is not at the top of this list is that the city had so many vacant properties that a huge portion of them were demolished. Regardless, at 17.2%, the rate of rental vacancy is still the third highest rate in the nation.

8. Kansas City, MO (Tied for 8th)
Homeowner vacancy rates: 3.7% (13th)
Rental vacancy rates: 11% (22nd)
Total housing units: 883,099
Unemployment: 8.4%

Kansas City's rental vacancy rate of 11% is the 22nd highest of any major city in the country, while its homeowner vacancy rate of 3.7% is the 13th highest. The city has a relatively high rate of unemployment, at 8.4%. While it's below the national average of 9.2%, it is well above the state average of 6.6%. The median home price in the city is down by $19,000, or more than 13%, since 2008. Most of that decline came in the last year. Between the second quarter of 2010 and the first quarter of this year, prices dropped by more than $25,000.

9. St. Louis, MO
Homeowner vacancy rates: 3.3% (19th)
Rental vacancy rates: 11.4% (18th)
Total housing units: 1,236,222
Unemployment: 8.6%

In 2008 and 2009, the St. Louis area has shed more than 82,000 jobs. This loss had a negative impact on the city's real estate market. Vacancy rates have continued to rise, increasing from under 2% one year ago to 3.3% in the recent quarter. The rise in vacancy rates has occurred while the median sales price for single family homes has fallen more than 19% since 2008. While rental vacancy rate, which is currently at 11.4%, has decreased slightly since the last quarter, it is still 1.6 percentage points higher than it was last year. St. Louis office vacancy rate is at 12.6%, according to real estate information company CoStar Group.

10. Oklahoma City, OK
Homeowner vacancy rates: 5.2% (6th)
Rental vacancy rates: 9.6% (34th)
Total housing units: 539,077
Unemployment: 4.9%

Oklahoma City had the sixth highest homeowner vacancy rate in the country as of the second quarter of this year. The city's unemployment rate is just 5.3%, but this low rate has not helped improve high home and rental vacancy. From last year, home sales in Oklahoma state dropped by 7.7%, according to the state's newspaper NewsOK. In the city, sales were flat from last year. Between the first quarter of 2010 and the first quarter of 2011, the median home price in the city dropped by more than 8%.


Source(http://finance.yahoo.com/real-estate/article/113245/americas-sickest-housing-markets-247wallst)

Home Sales Forecast to Grow

Home Sales Forecast to Grow

Flipping Out Flipping Homes

The monetary hunger of millions has driven flipping homes to earn a reputation for being an investment ploy to make fast money through a slew of TV shows. tv show But the weak housing market has sent some of those trying to flip homes to flipping out.

Distressed properties, including foreclosures and short sales can be purchased cheap and with an investment of time and money can be transformed into valuable commodities. However, the collapse of the housing market is changing the rules flipping homes.

In some cases, wannabe flippers are finding that homes are worth less than they anticipated. In areas where home prices have been most depressed flipping homes have flopped as flippers are left holding the keys to their flips and a bloated mortgage. “It’s been pure hell,” said Roger Baylor, 37, a Las Vegas handyman who used to make his living in construction work in home building.


Source (http://www.housingpredictor.com/2011/flipping-out.html)

The Best Places to Buy a Home Right Now

By Nathan Vardi and David Whelan, Forbes.com
May 12, 2011
Though home prices in most areas around the country remain weak, the attractiveness of purchasing a home continues to diminish in the wake of the real estate bust. Fears of price erosion, a weak economy and foreclosure dog markets coast to coast.

But not everywhere. In places like the suburbs of Rochester, N.Y., houses look like a great buy. You can get a relatively new 3,000-square-foot home on a nice quarter of an acre lot in a good school district for between $300,000 and $400,000. "The real estate here is very inexpensive, it's about the same as renting and it actually makes sense for families," says Delores Conway, a real estate economics professor at the University of Rochester. "The houses are solid investments with good school systems that are fairly priced."
In Pictures: Best Places to Buy a HomeIn Pictures: Best Places to Buy a Home

According to recent data put together by real estate website Zillow, Rochester is the best place to buy a home in the United States. One of the reasons Zillow rates Rochester so highly is that its foreclosure rate is a minuscule 0.24%.

In order to figure out the best places to purchase a home in the country, Zillow looked at four statistical measures in 125 metro areas as of the end of February. These factors included affordability, as measured by home price to income ratios; the unemployment picture (both the absolute figure and how it's trending over time); the foreclosure situation; and year-over-year housing price trends.

"The list is populated by markets that did not participate in the housing run up from 2000 to 2006 and therefore their housing recession has been milder," says Stan Humphries, chief economist at Zillow. "These markets are very affordable, where people are typically spending under 2.5 times their income on a house so it's pretty affordable, and they are now spending what they were paying in the 15 years between 1985 and 2000."

The housing recession in places like Pittsburgh was relatively mild, helping to land Pittsburgh second on the list of best places to purchase a home. Like Rochester, Pittsburgh depends on major university employers such as the University of Pittsburgh and Carnegie Mellon. The former Steel City's median home price is an inexpensive $103,900.

The best places to purchase a home in America are mostly in the heartland, reflecting the coastal nature of the housing boom and bust. None of the best places to purchase a home are located on the West Coast in states like California, Oregon and Washington, not to mention Nevada and Arizona.

There are, however, places in the center of the U.S. that figure to be great for home purchases. In Oklahoma, Oklahoma City and Tulsa are both energy belt areas with strong economic fundamentals and housing markets that have been steady for years. And at 4.1% Lincoln, Neb., has the lowest unemployment rate of any metro area in the nation, and it's falling. All three cities made the list.

Here are the nation's five best places to buy a home right now:

5. Tulsa, Okla.

Tulsa is the 5th best place to buy a home now
Photo: Mark Gibson/DanitaDelimont/Newscom

The energy belt is a good place for homeownership as Tulsa residents can attest.
Midpoint price: $105,400
Foreclosure rate: 0.27%
Price appreciation quarter-to-quarter and year-to-year: -4.1% / -9.3%
Unemployment rate: 6.5%
Year-over-year change in unemployment: -1.8%

4. Oklahoma City, Okla.

Oklahoma City is the 4th best place to buy a home now
Photo: John Elk III/Lonely Planet Lonely Planet Images/Newscom

OKC has been booming job-wise, while the rest of the country recovers more slowly from the downturn.
Midpoint price: $109,400
Foreclosure rate: 0.24%
Price appreciation quarter-to-quarter and year-to-year: -3.6% / -3.9%
Unemployment rate: 5.2%
Year-over-year change in unemployment: -1.6%

3. Utica, N.Y.

Utica, NY is the 3rd best place to buy a home now
Photo: Richard Cummins/Alamy

This old industrial hub in upstate New York is still small. But it's been quietly reviving by attracting immigrants from Eastern Europe and Asia while remaining affordable.
Midpoint price: $98,600
Foreclosure rate: 0.08%
Price appreciation quarter-to-quarter and year-to-year: -0.7% / 2.1%
Unemployment rate: 8.6%
Year-over-year change in unemployment: 0.1%

2. Pittsburgh, Pa.

Pittsburgh is the 2nd best place to buy a home now
Photo: Jeremy Edwards/Istockphoto

Where else can you find a typical home that costs just barely six figures, root for championship sports teams, and get hired by a top university or hospital? Pittsburgh, the host of 2009's G-20 conference, has it all. What's more, Western Pennsylvania's nascent natural gas industry should provide growth for years to come.
Midpoint price: $103,900
Foreclosure rate: 0.50%
Price appreciation quarter-to-quarter and year-to-year: -2.2% / -1.5%
Unemployment rate: 7.4%
Year-over-year change in unemployment: -1.5%

1. Rochester, N.Y.

Rochester is the best place to buy a home now
Photo: Andre Jenny Stock Connection Worldwide/Newscom

Known as the historical headquarters of past-their-prime corporate icons like Kodak, Xerox and Bausch & Lomb, Rochester suffered decades of painful contraction before finding its equilibrium. The end result is affordable housing underpinned by strong remaining employers like the University of Rochester.
Midpoint price: $116,000
Foreclosure rate: 0.24%
Price appreciation quarter-to-quarter and year-to-year: -2.0% / -3.9%
Unemployment rate: 7.7%
Year-over-year change in unemployment: -1.0%



Source (http://realestate.yahoo.com/promo/the-best-places-to-buy-a-home-right-now.html)

" Why a Housing Double Dip Could Kill the Recovery "

At a bargain-basement auction of foreclosed homes held on Jan. 29 in a New York City Sheraton hotel, one of the music tracks that played as bidders prepared to pounce on distressed properties was James Brown's "Living in America."
It was either a major planning blunder or a brilliant thematic choice. Either way, the song's lyrics ("everybody's working overtime ...") were a strangely fitting sound track to a new American reality: while corporate profits rise and economic growth returns, the housing market is only getting worse.

The latest figures from the Case-Shiller home-price index, showing a fifth straight month of price decreases — including major drops in cities such as Boston, Washington, Las Vegas and Dallas — have economists worried that we may be headed for a double dip in the housing market this year, which could restrain the economic growth we're finally starting to see. And 2011 was supposed to be the year housing recovered; now, analysts are betting on anything from a 5% to 20% price decline.

A rising number of foreclosures, tied to persistently high unemployment, is smothering housing's rebound. According to the Mortgage Bankers Association, there are already 4.5 million homes in some stage of foreclosure. Some experts believe an additional 1.5 million may be added to the pile this year. With that kind of distressed inventory on the market, it could take four to five years for prices to come back up, according to Capital Economics senior U.S. economist Paul Dales.

What's particularly troubling is that data suggests a good number of those properties belong to lower-income, higher-risk borrowers who had already gotten a break on their mortgage payments via federal programs designed to reduce defaults. November data (the latest available) on these so-called modified loans showed that 45% of them had been canceled, meaning that the borrowers very likely redefaulted, even after the payments had been adjusted.

This is yet another example of the bifurcated nature of America's economic "recovery." The Fed can keep interest rates low to encourage lending, and the government can dole out tax breaks to encourage spending, but as Dales points out, "If you don't have a job, you aren't going to be able to pay your mortgage." Indeed, the biggest factor in mortgage defaults is unemployment — and as we all know by now, the unemployment rate is still unnaturally high for this point in a recovery, especially among vulnerable groups like minorities and those without college degrees.

Unfortunately, the trouble in the mortgage market contributes to the trouble with job creation. "Lower home prices don't help jobs, because they constrain consumer spending," notes Yale economist and housing expert Robert Shiller. Job growth is tied to spending, because without more expected sales, companies won't hire.
But people whose homes are decreasing in value won't spend; it's the wealth effect in reverse. So the poor housing market is holding back everything. Shiller, who just returned from the World Economic Forum in Davos, Switzerland, believes that the world leaders and policymakers who were there "don't really realize the extent of the suffering that's occurring. They are too insulated. But it's a vicious cycle that can make people feel worthless."

Don't get too comfortable if you live in an area that hasn't suffered big price cuts, because the problem could spread in the coming months. The latest numbers indicate that the lower end of the housing market is seeing the sharpest declines. But those declines could well drag down the value of higher-priced properties. Given that U.S. households still keep about a quarter of their wealth in property, the implications for consumer spending are sobering. "More than keeping interest rates low, the best thing that Washington could do for the housing market is to try and create some jobs — quickly," says Dales.

In lieu of that, policymakers might also get more creative about how mortgages are structured. In his 2008 book, The Subprime Solution, Shiller suggested a drastic fix to the current problem — a continuously changing mortgage balance that would be reset periodically based on both home prices and unemployment.
Thus, mortgages would reflect ongoing economic reality, and banks would have to keep lending. Meanwhile, to help banks cope with the risk involved, a market would be created to let them trade home-price futures, rather than splicing and dicing baskets of high-risk mortgages and then passing the risk on to investors. (A small market of this kind already exists at the Chicago Mercantile Exchange.) "We need to be creative.
It's all about democratizing finance and bringing more of the benefits of it to individual consumers," says Shiller. These and other housing-market reform ideas were deemed too radical when the crisis began. As it is now, they might not be radical enough.
(Source: http://www.time.com/time/business/article/0,8599,2045854,00.html)