The U.S. housing market, where the global economic crisis began, is far from hitting bottom.
Home prices across much of the country are likely to fall through late 2009, economists say, and in some markets the trend could last even longer depending on the severity of the anticipated recession.
In hard-hit areas like California, Florida and Arizona, the grim calculus is the same: More and more homes are going up for sale, but fewer and fewer people are willing or able to buy them.
Adding to the worries nationwide are rising unemployment, falling wages and escalating mortgage rates — all of which will reduce the already diminished pool of would-be buyers.
"The No. 1 thing that drives housing values is incomes," said Todd Sinai, an associate professor of real estate at the Wharton School at the University of Pennsylvania. "When incomes fall, demand for housing falls."
Despite the government's move to bolster the banking industry, home loan rates rose again on Wednesday, reflecting concern that the Treasury will borrow heavily to finance the rescue.
While banks are moving aggressively to sell foreclosed properties, the number of empty homes is hovering near its highest level in more than half a century. As of June, 2.8 percent of homes previously occupied by an owner were vacant. Nearly one in 10 rentals was without a tenant. Both numbers are near their highest levels since 1956, the earliest year for which the Census Bureau has such data.
Also, the number of people who are losing jobs or whose incomes are declining is rising. The unemployment rate has climbed to 6.1 percent, from 4.4 percent at the end of 2007, and wages for those who have a job have barely kept up with inflation.
One reliable proxy of housing values — the ratio of home prices to rents — indicates that in many cities prices are still too high relative to historical norms.
In Miami, for instance, home prices are about 22 times annual rents, according to analysis by Moody's Economy.com. The average figure for the last 20 years is just 15 times annual rents. The difference between those two numbers suggests that a home valued at $500,000 today might be worth only $341,000 based on the long-term relationship between prices and rents.
The price-to-rent ratio, which provides one measure of how much premium home buyers place on owning rather than renting, spiked across the country earlier this decade. It increased the most on the coasts and somewhat less in the middle of the country.
The current housing downturn is much more national in scope and severe than any other in the postwar period, partly because of the proliferation of risky lending practices. Today, foreclosures are running ahead of the downturn in the economy, a reversal of previous housing slumps.
"We are in uncharted waters," said Brian Bethune, an economist at Global Insight, a research firm.