`3 reasons housing recovery may be shortlived
May 7, 2013
Housing prices have surged 8 percent in the last year and some homebuyes are in a rush to place their downpayment on a new porperty.
However, some financial investors fret the growth in the housing market will be given short shrift.
Here are three reasons the housing recovery may not last:
The housing recovery is being led by investors. One problem is that investors are leading the latest surge in home prices, said Dean Baker, co-director of the Center for Economic and Policy Research. They are taking advantage of low interest rates and depressed home prices and when those rates and prices rise, they'll likely pull back, he said.
"An investor-driven boom is likely to end badly," said Baker. "I'm worried that some of the big jumps in prices are driven by the same sort of speculation that drove the [original] housing bubble."
The economic recovery is just not strong enough yet.
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"These days, I worry more about the economy hurting housing than housing hurting the economy," said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, a Washington D.C.-based think tank.
He's especially concerned about employment. Hiring slowed significantly in March, with just 88,000 jobs added — the weakest showing since last June.
The sequester. Headwinds from the current round of government spending cuts — $85 billion worth — could also curb the housing market's recovery.
"The spending cuts from the sequestration [will] hit their apex this summer," said Mark Zandi, the chief economist for Moody's Analytics.
— Courtesy of CNN Money