The Real Estate Crisis in the US will recover only by 2010

The US housing market bust may not bottom out until 2010, later than previously thought, and more home builders may fail before the housing market recovers, and this is understandable by the recent happenings in US.

Upheaval in the financial markets is making credit harder to get, both for home builders and consumers, raising the risk of more job losses, mortgage delinquencies and foreclosures. It is very clear from the crisis in the US financial system that the housing market and the broader economy will likely worsen before they improve, and is struggling through its worst period since the Great Depression after subprime borrowers, those with a high risk profile, defaulted on mortgages, thus triggering a slide in home prices and glut of unsold homes.

While some housing indicators may bottom out around the end of this year, its very unlikely to expect the overall housing market to show any significant improvement until at least 2010. Home builders would like to write down land holdings to distressed market values, pay down debt, or rebuild their equity and cash positions. Without doing these necessary steps, some or many of the home builders will not survive. Even some survivors will be poorly positioned to take advantage of a home building recovery, which now appears farther down the road.

Home builders have already written down the value of their land, options and joint ventures by $25.5 billion from March 2006 to June 2008. As land values fall, lots go unused and losses drag on, more home builders would likely violate terms of their loan agreements over the next year. Some home builders have already amended their credit agreements three or four times, and banks will take an increasingly tough stance as concerns mount about their own balance sheets.

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