Has the Housing Market Really Hit Bottom?

A rash of positive housing data has given some analysts hope that the housing market has bottomed and an economic recovery is underway. But the soaring unemployment and rising mortgage rates could lead to a double-dip plunge for the housing market.

Home prices rose on a monthly basis in May for the first time in nearly three years, according to the Standard & Poor’s Case-Shiller Home Price Index. The improvement in the Case-Shiller index followed the release of several equally optimistic government reports that showed increases in home sales and housing starts, and a decline in inventories.

Home construction unexpectedly rose in June as well. Housing starts increased 3.6% from May to a seasonally adjusted 582,000 annual rate. And even while more houses were built in June, the number of available homes on the market went down.

The federal government’s effort to lower the cost of borrowing has been a big reason why the housing market has been able to stabilize over the past few months.

Mortgage rates fell to a record low 4.78% twice in April after the Federal Reserve announced its plan to scoff up mortgage backed securities. That led to a surge in mortgage and refinancing applications. But now it appears the Fed’s effort to reduce borrowing costs is losing momentum.

Higher mortgage rates aren’t the only thing daunting potential homebuyers either. Soaring unemployment also poses a threat to the housing market by eroding disposable income and consumer confidence.

The gains made in the housing market have been encouraging to many analysts and investors. But with Americans facing heavy job losses and higher mortgage rates, it’s hard to imagine how they will be sustained.

Only time will tell, of course, and as with every recession before this one, no one will know exactly where the bottom is until it’s too late, and we’re all looking back and recognizing that the bottom passed months ago.