March 7, 2009

THE DEFLATIONARY CYCLE:

Consumers who could lift market not ready to buy (Robert Gavin, March 7, 2009, Boston Globe)

Getting people like Gatchell and Neff off the sidelines is critical to reviving not only housing markets, but also the economy, analysts said. It's the reason behind the $8,000 tax credit for first-time home buyers written into the federal economic stimulus package. Home sales generate economic activity as new owners furnish, renovate, and landscape properties, and construction firms build more homes to meet demand.

Karl Case, an economics professor at Wellesley College, estimated that each dollar invested in a new home produces about $1.40 in economic activity. Nearly every recovery since World War II, he added, has been led by a resurgence in home building. "Until we get the housing market fired up, we're not going to have much of a recovery," Case said.

It is unknown how many ready buyers are waiting, but a variety of data suggest it is a substantial number. US home sales have plunged to 1997 levels, even though there are 34 million more people in the country today, according to the National Association of Realtors. In Massachusetts, there were about as many homes sold last year as in 1992, even though the state has added nearly 200,000 households since then, according to the census and Warren Group, which tracks real estate transactions.

Meanwhile, more people say it's a good time to buy a home even as fewer do. In January, 70 percent of US households said it was a good time to buy, up from 61 percent a year earlier, according to the Reuters/University of Michigan Survey of Consumers. But home sales fell 9 percent over the year, according to the realtors association.

"The problem of affordability has been overtaken by the problem of unwillingness," said Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies.


Meanwhile, ten million potential buyers await Amnesty.


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Posted by Orrin Judd at March 7, 2009 7:00 AM
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