US Housing Market to Hit Bottom Soon: Savills CEO
The housing market in the United States is set to hit a low if monetary policy in the country is tightened, according to the CEO of Savills, John Lyons.
“I think that the opportunity for interest rates to rise is more of a probability than a possibility,” Lyons explained.
“Typical rates in a sustainable economy could go 200-300 basis points higher,” Lyons said. “But I think we’re only talking 100-150 basis points which are going to come in gradually and be eased in over time.” Lyons thinks that currently rates are so low that an incremental rise would not have a severe impact on the equity market .
In fact, Lyons believes that a rise in rates could be exactly what the housing market needs in order to get back on its feet. “As rates rise, you’re going to find values increase which will help us lift out of this recession ,” he said.
The U.S. housing sector has been sending mixed messages lately. February housing starts slipped 1.1 percent when they were expected to increase, while the construction of multi-family projects soured 21 percent. Starts are up nearly 35 percent from last year, but they are still less than a third of the peak hit in early 2006.
Before the recession, there were about 1.2 million foreclosuresper annum and the average price per home was about $222,000 per unit. Today, foreclosures are exceeding 3 million and the price per home has dropped to about $155,000 on average.
Given these numbers, Lyons predicted that the housing market has nearly hit its bottom. “What will happen is more units will come onto the market, it will further depress prices, and prices will drop. But there is a silver lining here — people will be able to buy these units because they will be less expensive.”
Lyons warns that while many will benefit from the market correction, it is not good news for everyone.
“Right now it’s anticipated that about 11 million homeowners have mortgages that are higher than the value of their homes. This is going to hurt those people further and we’re anticipating that there is going to be somewhere between 8 and 9 million homes lost to foreclosure during the next 4 or 5 years.” Lyons said.
However, Lyons believes that the $25 billion settlement reached by the Department of Justice will help the housing market become more self-sustaining.
“$20 billion will go to help off-set the pain that those who have been foreclosed upon went through, and $5 billion is for fines and penalties,” Lyons said. “What it does is it clears the process, and it will make it more streamlined and a little quicker to go through the foreclosure process.”