Geoffrey Hewings, director of the university's Regional Economics Applications Laboratory, is an expert on the real estate market, compiling a monthly home sales forecast for the Illinois Association of Realtors. Across the nation, the housing market is mired in its worst slump since the late 1980s, with prices sliding and September sales of existing homes down 19 percent from the year before. Hewings, a professor of economics, geography and urban and regional planning, discusses the economy-draining downturn in an interview with News Bureau business and law editor Jan Dennis.
How sluggish is the housing market in Illinois and when was the last time it was this slow?
The market varies across the state, with some communities doing very well and others experiencing declines in sales that have not been felt for 7-10 years. The housing market is cyclical but movements in this market have a much more visible impact (the profusion or absence of "For Sale" signs for example) than the stock market because so many more people have invested in housing. However, it is a market, and there is no "law" that suggests that it should only move in one direction. Unlike investments in stocks, housing has a "use" benefit that you can enjoy even if the value is not appreciating.
Nationally, some analysts say the housing market might not improve until 2009. When do you expect a turnaround and what do you think is needed to spark one?
Until the full effect of the sub-prime meltdown works its way through the economy, it will be difficult to make an accurate forecast. The housing market is not immune to the vagaries of the economy in general and the response of the Federal Reserve Bank will play an important role in generating a "soft" or "harder" landing. Many analysts believe that, over the next 2-5 years, oil prices are likely to play a more important role. In addition, one could view the sub-prime meltdown as a signal that the procedures enacted were not sustainable and that both developers and lenders need to re-think strategies to expand home ownership.
With home prices sliding, is real estate still a good investment?
In the long run, given the tax advantages over renting, and the expectation that appreciation is likely to occur in the value of housing, it would still be an attractive option. However, those looking to make short-term, substantial gains might find the housing market less attractive. In addition, the housing market is really a set of linked markets (new homes, existing homes, condominiums) and in any community or metropolitan area; the dynamics can often be very different across these submarkets.