Real Estate what is a Double Dip Housing Market

Will slow market growth and the global economic crisis deteriorate to the level that we face another recession? One which leads to what is deemed as the double-dip scenario? Prior to being able to answer this query, one needs to determine exactly what a double-dip is. A double-dip in the housing market is basically a second round of economic decline. Considering it’s common to have quarters of gain even while a recession is present, one can see that a second dip of economic decline has been occurring since the 2007-2009 market nosedive and is still very real. Look back through marketing history and one will see that even during the 11 post war recessions, seven of these had at least one quarter of gain.

During the economic collapse during 1929-1933, GDP still managed to rise in six quarters. Therefore this continual economic weakness could certainly lead to a double- dip housing market. In fact, financial authorities are saying that this is a ‘slow growth to recession’. America is on record for having a 50% higher probability for a double-dip than any other country in the world. Recessions are said to be propelled by shocks. The 2001 recession resulted from the collapse of the dot com bubble 9/11 shock. The collapse in sub prime residential mortgages resulted in the 2007-2009 downturn. Household spending is suppressed by the high level of unemployment, low home equity, slow income and extremely tight credit conditions.

But banks are still continuing to lend. America is pushing on a string and conventional monetary ease is now deemed relatively impotent due to federal funds rate being almost zero. Small business owners are having their credit needs met but business is so suppressed that they don’t dare borrow if they can avoid it. In laymen’s terms, the Fed is pushing along on the proverbial shoe string. Deflation is worrying the Fed and zero interest rates are deemed positive in one sense of the word. Deflation has buyers sitting back waiting for even lower prices. Deflation is a word with can cause one to shudder. But in contrast, Peter Eavis writer of the April 6th Wall Street Journal Piece stated “No one in their right mind would bet on inflation remaining substantially below 4% for the next 10 years. Maybe we better have our head examined!”

Unfortunately credit to some, is a little too easy to gain in this day and age, Unsuspecting buyers fail to foresee the consequences of inflated prices, loans they can’t really afford due to employment decline and the fact that they can be sitting on property which gains absolutely no equity whatsoever. In other words, they could be mortgaged to the hilt for something which is not a valuable asset. Failing to know the consequences up front, can be detrimental to the innocent looking for a good investment. Far too often investors rush in with very little knowledge of the true implications of property ownership, interest rates and so forth. They slip their innocent heads in a financial noose which is hard to untie. Insurance premiums are high due to low down payments and this does nothing other than to protect the lender.

Unfortunately the housing bubble pops, lenders want their money or foreclose and who suffers? The investor! The rug is literally pulled out from beneath investor’s feet and waiting for that inevitable rise in property becomes a virtual nightmare. A tiny gain has a myriad of investors breathing easy thinking all will be well now, yet many jump to conclusion too fast. Many reinvest thinking the hard times are over, then experience what many would call a gut punch when the double-dip occurs. The nightmare begins as house prices slide downhill once again, faster than an avalanche. Consequently house prices decline even more and the investor is in more financial crisis than ever before.

With Reuters estimating that in excess of 3 million homes will face foreclosure during 2010, a plethora of people who have clung tightly to their homes will be walking away from them with nothing but a poor credit rating and shattered dreams. The increase in rentals is astounding, many potential investors now sit back wondering how long it will take for the effects of the double-dip in the housing market to show its true damage.