Housing Slump May Last Longer than Usual, Says Joint Center’s Director

By Keat Foong, Executive EditorNew York—The housing downturn may last longer this cycle than is historically the norm, suggested Nicolas P. Retsinas, the director of the Joint Center for Housing Studies of Harvard University, which released its annual State of the Nation’s Housing report this week. At some point, housing demand will bounce back, says Retsinas, but “it will take longer this time to rebound given the unusually high levels of foreclosures and constrained credit markets.” Retsinas says the housing slump has not yet run its full course. He says that mortgage rates have barely responded to the easing of the Federal Reserve, the supply of for-sale vacant units continues to grow, and meanwhile, “much tighter underwriting is locking many would-be homebuyers out of the market.”Moreover, Joint Center for Housing Studies’  report says that high levels of foreclosures will continue to exert extreme downward pressure on prices, especially in low-income and minority areas. The Joint Center for Housing Studies reports that the number of homes entering foreclosure nearly doubled to 1.3 million in 2007 from about 660,000 in 2005. According to The State of the Nation’s report, home price declines and mortgage defaults are the worst on records dating back to the 1960s and 1970s. “Historically, housing markets recover only after the economy has entered a recession and a combination of falling mortgage interest rates and house prices have improved housing affordability,” says Retsinas. The report observes that the number of homeowners paying more than half their income on housing “rocketed” from 6.5 million in 2001 to 8.8 million in 2006.