A New Phase Begins for Housing Downturn

While it is true that places like Arizona, Florida and California have been hit hard by the housing downturn, many locations nationwide have been relatively unscathed by the market correction. No where would this seem more true than right here in the New York City region, where the market "correction" has thus far only been seen in terms of reduced sales volume, more time on the market and modest price reductions.

Well all of that may be about to change. It has long been argued by the Real Estate agents that there could be no housing down turn as long as employment was high. They were perhaps being over optimistic when they were disseminating this rhetoric back in 2006 and 2007, as the housing downturn had clearly begun by then; but they were on to something none-the-less. You see, there is indeed a strong connection between the housing market and the employment market, and unemployment and underemployment weigh heavily on the housing market.

It is now clear that any American who is not at least a little worried about losing his or her job and/or business is just out of touch with reality. Our whole economy was based on people borrowing money to fuel consumption. Now that cheap and easy credit has become a little harder to come by, our economy seems to be running out of fuel and we are experiencing severe contraction as our economy digests the fact that people will be consuming less and making due with what they have to the greatest extent possible. This will in turn lead to more job losses and that will lead to more belt tightening. The downwards spiral is likely to continue until people have cut back on as much consumption as they possibly can. You can expect unemployment to get much worse than it is now.

This change will clearly have an effect on housing. While up until now, the decline in housing sales has not been a matter of people being afraid to buy a house, it has been about the availability of sufficient credit. As people begin to understand that they should only be paying 1 year's salary for a house and not 4 to 10 years salary, the housing crash will enter a new and accelerated phase. I believe that we are entering this new phase now.