Expert Says Michigan Housing Market Won’t See Long-Range Decline

Forecasts of further gloom and doom in the Michigan housing market are probably exaggerated, according to the Kalamazoo Gazette.

“Is the housing market going to crash and drag other industries down with it? I think that’s a stretch,” said Carl Tannenbaum, LaSalle Bank Corp.’s chief economist, during a presentation in Kalamazoo.

Alluding to reports that median home prices will drop at a national rate of 3.6 percent in 2007, he said home sales have been declining for more than a year, but optimists would notice that prices were setting records in 2003. They’re coming from pretty lofty peaks… and the correction is not going to go on without end.

The sluggish housing market, combined with Michigan’s history of overfinancing homes, has led to real estate investment losses, reductions in disposable income because of higher Michigan mortgage payments and a decline in the practice of dipping into home equity for spending.

Tannenbaum, who called consumers’ over-indulgence on home equity loans the industry’s “crack,” suggested several factors should help counter the slow market. Namely falling energy prices, the health of the home-remodeling market, increases in job relocations, gains in income and in the stock market, and the recent drop in U.S. unemployment to under 4.6 percent..

This summer’s drop in fixed-rate mortgage rates from 6.75 percent to 6.25 percent also provides a healthy incentive to refinance homes.

Tannenbaum said that rising gasoline prices have had a positive effect on American efforts to find fuel alternatives.

“Gas prices will likely get more expensive,” he said. “Because there’s a finite supply, and demand from places like China and India is likely to grow. But the economy has turned in some of its strongest quarters since [the price hikes].”

He said he’s against the U.S. government’s intervention to try to control gas prices, but favors a gas tax that would help finance future research and development of fuel alternatives. He said Michigan is poised to make “a significant growth industry” out of alternate fuels, especially those using raw materials less labor-intensive than corn.

He compared today’s economy with that of the 1970s, when the U.S. faced a number of energy challenges, high inflation, high mortgage rates and high unemployment.

But nowadays, we have a better mix of industries supporting the economy, less reliance on oil, and more advanced economic leadership.