The Truth About the Housing Market

According to the media in recent months, the housing market, and all those industries associated with it, is at an unprecedented level of dismay. The public is being told that credit markets are in turmoil, mortgage defaults are rising to levels previously unseen, and that the housing market continues to slide and take the rest of the economy down with it. These stories are generally overblown. The public isn’t being told, however, that the current market provides one of the most favorable series of variables to entry into homeownership.

Though prices in the housing market have dipped slightly over the last year and a half in some national markets, the local housing market remains stable as home values continue to appreciate at reasonable rates in many communities. According to the National Association of Realtors, the average home price between the first and second quarters of 2007 in Waukesha County has increased by 4.7%, in Ozaukee County has increased by 2.9%, and in Washington County has increased by 8.3%. As prices remain relatively stable in areas, first-time homeowners are placed in the enviable situation of having a number of housing options to chose from, all at very reasonable prices. In addition to this, credit rates remain exceedingly low and it appears as though the Federal Reserve is doing its part to keep them there.

Currently, credit markets remain stable, as the vast majority of defaults remain in the very small sub-prime market. Credit markets, like the housing industry in general, are cyclical in nature. According to U.S. Treasury Secretary Henry Paulson, the biggest surprise about the recent credit turbulence is how long it’s taken for this mild downturn to occur. He has insisted that there are generally five, six, or seven year cycles – not the nine-year cycle that we’re currently in. Paulson insists that the strong underlying economy and the strong global economy will mean that the U.S. will avoid any recession.

The reality is that foreclosure rates are no higher now than they were five years ago. Sub-prime delinquency rates in the fourth quarter of 2006 were exceeded by delinquency rates in 2001 and 2002. Furthermore, the 4.5% foreclosure rates on sub-prime loans for the previous year are consistent with rates in years past.

Instead of legislating to restrict opportunities for homeownership, governments should do more to provide incentives for lending institutions that resist going into the foreclosure process on homes. Furthermore, the government needs to address abuses in the predatory lending market (one that is separate and apart from the sub-prime lending market). To ensure that consumers are aware of their responsibilities when selecting a mortgage, disclosure rules should be strengthened for lenders, particularly where future increases in interest rates are concerned.

Homeownership remains one of the most important and successful tools for creating wealth in our society. As long as borrowers are informed about the requirements of a loan, and given additional knowledge about tools to avoid foreclosure, they should be afforded every opportunity to pursue their own American dream. Now is as good a time as any for that.