But What If It Doesn’t Happen Tomorrow?

Last week, we discussed some of the reasons the housing crisis seems set to continue through the next year.

Many in the industry are waiting to see what the Fed announces tomorrow in regard to the interest rate: The federal funds rate has been kept at 5.25 percent for months. There’s speculation it will be lowered Tuesday.

If the Fed does lower the rate, it’s not going to fix things immediately. And if the Fed doesn’t, well — it might be time to start looking at what we can do to correct our industry.

But what can we do? Some thoughts:

  • Reduce home inventory. With a surplus of homes on the market, sellers are facing too much competition to sell their homes near the asking price — or in some cases, at all. (Hence — Former chairman of the Federal Reserve Alan Greenspan’s statements over the weekend to the Financial Times warning homeowners to expect prices to fall further.)

The current housing supply needs to be cut before we expect home prices to increase — or for there to be a need for new home construction.

Which is why it might make sense for home builders to help get the market moving, however they can. In Atlanta, housing inventory is high — in North Atlanta has a 10.5-month supply and South Atlanta has a 9.8-month supply, according to market source Metrostudy.

It’s led some Atlanta builders to make changes to correct the housing situation, offering aggressive buyer incentives and reducing prices to cut existing home inventory, according to the Atlanta Business Journal. Although it’s too early to see the full results of their reaction, it could prove a good start.

Hopefully the builders’ efforts will have an effect: There isn’t much time to lose, since Georgia’s community banks are among the nation’s most vulnerable because of a reliance on construction lending, Metrostudy reports.

  • Wait it out. In some areas, taking immediate action to lessen the housing supply may not be needed — the continued construction slowdown, while economically painful, may do the trick.

The National Association of Realtors thinks the housing slump will continue past 2007 — but because of new construction declines, the NAR thinks it may actually lessen, according to the Miami Herald.

The group projected new home construction will fall to 1.37 million this year and 1.26 million in 2008 — but labeled that as a "healthy trend" that would help adjust the already bloated new home inventory.

Are those the only possible solutions? Nope. Are they guaranteed to work? Not at all. But as the housing situation worsens, we’re all looking for answers. We’d like to hear your thoughts on how to correct the situation.

The housing slump wasn’t caused by one person or industry group — and in reality, it can’t be fixed by just one, either. But the longer the industry sits back and wonders who will step in to correct the problem, the bigger it gets.

We’ll see tomorrow if the Fed feels the same way.