Economic struggles and unemployment to prevent sustainable rise in home prices

September 26th, 2012

Foreclosure rates, high unemployment and economic volatility may inhibit sustained housing market recovery.

The results of the latest S&P/Case-Shiller Home Price Index reveal a strengthening in home prices across the nation. However, economist Karl Case, who helped create the index, said that a sustainable recovery of home prices is unlikely.

The housing crisis involves more than mortgage rates and home values, and recovery will also depend on the strength of the economy and unemployment rates, he told Bloomberg News. He noted that the index, despite some gains, remains 30 percent below its peak in July 2006. Other economists have echoed these sentiments, calling attention to the high number of distressed properties and foreclosures that will also continue to weigh on consistent gains and drag down values throughout entire communities.

"We're at a bottom but I don't think we'll come roaring out of here," Case told Bloomberg. "You've got problems in the economy, problems abroad, and got the demographics to worry about."

Making the decision to purchase a home is complicated by this scenario, because prospective buyers are receiving conflicting reports from economists, federal housing agencies and studies. For this reason, would-be homebuyers should discuss their situation with mortgage consultants before making a major decision.