whither the u.s. housing market

Fortune magazine had a thoughtful and rather optimistic article on possible trends in U.S. home buying. The author was bullish, pointing to a deep trough in homebuilding which will constrict the supply pipeline, and a rebalancing of renting vs. buying. The main weakness is still demand, which in a new climate of restricted lending, may not recover in a way that can cause a rebound in housing starts, real estate transactions and house prices.

I offer this prediction, which will almost certainly be wrong: House prices will continue to slump in a choppy fashion for the next few years. Distressed markets will balance out recovering markets (Yay Boston!, T.S. Las Vegas) and it will take at least five years before all regions of the country revert back to the Case-Shiller slope. But, even this scenario may be optimistic. Household balance sheets are in tough shape, there is a generation of people who have stagnant wages, poor credit and a sour taste in their mouths from the debacle of the housing bubble. We could reinvigorate demand by adopting a more open immigration policy, but I doubt that such a good idea would gain any traction in our current political landscape.