The good news about the current housing market is that there is an abundance of inventory and affordability. However, the most recent numbers show prices steadily declined from October 2010 to October 2011. Overall, housing prices are lower than they were in October 2001. And, in some cities, prices are at their lowest level in 20 years.
Real Estate tracking experts are suggesting that 2012 will see neither a big housing rebound nor a second crash. After the last housing collapse in 1991, prices stayed almost perfectly flat for about six years. Looking ahead, price swings will likely be limited by housing supply. Currently, housing growth is slow because prices must stay high enough to cover construction costs. And, there must be new households to fill the homes. During the housing boom, builders completed about 1.9 million units annually; while the number of new households increased by about 1.33 million each year. During the crash, new housing formation dropped to below 400,000 per year as the number of young adults living with their parents increased.
2012 should have more construction activity as the number of new households has started growing again. The Census reported an increase of more than 1 million households from 2010 to 2011. If this trend continues, the US will begin working through its excess housing inventory this year. In time, enough new households will create sufficient demand to bring back the construction industry. A prediction on how long that will take is a more difficult and less precise exercise.
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