Home Prices Seem Far From Bottom

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Bajaj, Vikas. Home Prices Seem Far From Bottom. The New York Times. October 17, 2008.

The American housing system has been facing one of the worst economic downfalls ever recorded in history. Most analysts have tried to keep the general public optimistic with claims that the situation will improve in the near future. However, in line with other skeptics, this article has been directed at sensitizing the public that the worst is yet to come. This is a critical analysis of the gravity of the matter and the potential crisis that this could lead to.

In analyzing the situation, Bajaj analyses the crisis in the real estate market as one of the indicators of the global economic crisis. This downward trend is construed as not having an end in sight, especially in the near future, but could actually get worse in the event of a potential recession. One of the gauges of the housing predicament is the increase in the number of homes up for sale with less potential buyers for the same. According to research based on the article, some of the reasons for this situation are due to the increase in the rates of unemployment as well as the falling wages of those fortunate enough to retain their jobs. At the same time mortgage rates have gone through the roof, a further hindrance on those who are willing to buy houses.

The article further discusses the reactions various financial and governmental stakeholders have had especially to the indicators of rising home loan rates. The Treasury has been cited as possibly borrowing towards putting money into rescuing this situation. At the same time banks are reported at assertively selling properties that have been foreclosed. However, despite these actions, the number of empty houses has increased drastically to figures reaching near fifty-year highs. This, as Bajaj further affirms, is further caused by the increase in the number of people being laid off from their jobs causing soaring unemployment rates. The situation of those retaining their employment is further aggravated by reduction in their incomes, brought about by pay-cuts which companies use in a bid to deal with the strenuous economic times. Thus employees find there wages decreasing and not being able to sustain their needs especially with the unfavorable inflation.

The research model that is used by the writer is that of price-to-rent ratio which determines the ratio of home prices to the rents charged for the same. This indicator shows that the rates charged in most urban areas is particularly high as compared to those recorded in the past. Thus the premium placed by those buying houses was recorded to have increased drastically in the recent past. This fact is made worse by the heavy investment made in the past in the real estate industry which has forced those with mortgages on larger houses in areas such as Southern California to foreclose on their properties. This current phenomenon is presented as being in the reverse of other housing crises in the past which usually came in the wake of downturns in the economy.

This article deals with most major aspects of the housing system from the economic background which they stem to the steps being taken to improve the situation. The implication that the writer tries to send forth is that without drastic measures, the current slump in the housing industry will become worse. The higher interest rates in the loans being offered to potential buyers as well as the declines in the prices of houses of those homeowners will only bring the crisis to lower depths. Thus the main point brought out is that the situation will get worse before it gets better.

 

 

 

 

 

Reference:

Bajaj, Vikas. Home Prices Seem Far From Bottom. The New York Times. October 17, 2008.  Retrieved December 4, 2008 from http://finance.yahoo.com/realestate/article/105964/home-prices-seem-far-from-bottom