With home prices having dropped a painful 21 percent from their 2006 peaks, property owners everywhere could use a splash of good news in their New Year’s Eve cocktails. But as a nasty recession is now part of the picture, the chances of an aggressive housing market rebound next year are dim. “A lasting recovery in the housing market?” says Mike Larson, a real estate analyst at Weiss Research. “I don’t see it in the cards until the back end of the year—if that.”
Here’s a look at the factors that will be weighing down the housing market in 2009:
1. Recession After months of speculation, the National Bureau of Economic Research made it official Monday, announcing that the U.S. economy entered into a recession in December 2007. The only question now is: How painful a recession will we have? In a November 21 report, economists at Goldman Sachs revised their previous forecast to reflect a more significant economic contraction and higher unemployment. “We now estimate that real GDP is falling at a 5 percent annual rate in the current quarter, and we expect this to be followed by declines of 3 percent and 1 percent in the next two quarters,” the economists said. “This deepens and extends the expected recession, bringing the drop in GDP close to the decline seen in 1982 (2.3 percent in our forecast versus 2.7 percent then).” The recession will exert downward pressure on the housing market in a number of ways.
2. Higher Unemployment The shrinking economy will result in additional layoffs, which will work to smother housing demand. The unemployment rate has already been climbing—it now stands at 6.5 percent—but many expect it to increase significantly in the coming year. Goldman Sachs projects the unemployment rate to hit 9 percent by the end of 2009. “This forecast, if correct, makes the current recession unequivocally the worst single downturn on record since World War II insofar as increases in joblessness are concerned,” the economists said. Fewer jobs mean fewer home buyers, since an income stream is essential to obtaining a mortgage. “A job is necessary for a home,” says Mark Zandi, chief economist at Moody’s Economy.com. “Without [a job] you can’t get [a home].”
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