A Lost Decade for America's Housing Market?

| Fri Sep. 25, 2009 4:36 PM EDT

While the broader economy might be showing signs of improvement, the US housing market remains a disaster. And if a recent Moody's analysis holds true, real estate could remain that way for the next decade or more, and even longer in states devastated by the housing meltdown, like California and Florida. "For many reasons, the rebound will be disproportionately small compared to the decline," Moody's analysts said this week. "It will take more than a decade to completely recover from the 40 percent peak-to-trough decline in national home prices." The hardest-hit states, meanwhile, "will only re-gain their pre-bust peak in the early 2030s."

Ouch. This kind of analysis suggests that America's economic recovery will be a protracted one, looking more like a W than a V. Granted, the Moody's projection looks at us returning to housing-bubble peaks, when in fact the housing market needn't—indeed, shouldn't—return to the overinflated prices that preceded the collapse. Its analysis, nonetheless, goes to show that normalcy in the housing market is a long way off—bad news, given that real estate plays such an integral role in our economic health (if this crisis taught us anything, it taught us that).

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It doesn't help that the government's efforts at homeowner relief have been misguided and bumbling. The Treasury's flagship mortgage relief program—the $75 billion Home Affordable Modification Program—has had little impact so far. Meanwhile, foreclosures (360,000 in August) remain at record levels, as do mortgage delinquencies. To blunt the impact of this predicted "lost decade," the government and private industry (though I don't hold out much hope for the latter) will need come to up with solutions that help more than just 12 percent of ailing homeowners.

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