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When will the housing market recover?

The cold front that has swept through the housing market has hit some areas of the country much harder that others, and a reader from Florida is among many wondering: when will things begin to pick up again? The Answer Desk, by's John W. Schoen.

The cold front that has swept through the housing market has hit some areas of the country much harder that others, and a reader from Florida is among many wondering: When will things begin to pick up again? Wayne in Reno is wondering what the heck a 'large cap' stock is. And Rachel in Missouri is having a hard time convincing lenders to give her credit.

Please, when will the housing market stabilize? Or better yet, start to pick up?
Name withheld, Valrico, Fla.

You won’t see a recovery of the housing market until the big inventory of unsold houses has worked its way through the system. And no one knows how long that will take.

Most economists and analysts think the housing market won’t turn around before at least the end of this year. But they won’t really know the turnaround is here until after it’s happened. So your guess is really as good as the experts'.

To make your prediction, you’ll have to come up with a few other forecasts. First, you’ll need to know how many recent home buyers who are having trouble paying their mortgages will ultimately default and lose their homes in foreclosure. Since those foreclosures are still rising, it’s a pretty safe bet the housing market hasn’t hit bottom. Those foreclosed properties are often sold quickly, putting even more pressure on the prices of the rest of the houses in the same neighborhood.

Some lenders are now working with borrowers who are in trouble to see if they can rewrite these mortgages with terms that will help avoid foreclosure. Since that process is under way, it’s too soon to know how much longer foreclosures will keep rising.

It’s also not clear whether the recent rise in mortgage rates will throw more cold water on an already-chilly market. Rates jumped a few weeks ago, and the bond market has been unsettled since. If rates move higher from here, that could delay a housing recovery.

But keep in mind that the real estate market is really a bunch of separate markets. The biggest problems are concentrated in a few regions (including Florida) and within certain types of properties and price ranges within those regions.

We talked to a builder in Florida last week who said that while sales of big, expensive condos are still going nowhere, he’s doing a good business building single-family houses for the lower end of the market. As long as Florida’s economy keeps creating jobs, and people keep moving to the state, they’ve got to have somewhere to live.

Some markets are already beginning to perk up. New home construction in May was up 15.7 percent in the Northeast and 15.5 percent in the Midwest.

But the areas that saw the biggest surge in new building and price increases during the boom — including Florida, California, Arizona and Nevada — are now feeling the brunt of the pain from the housing bust. When a regional gets overbuilt it takes longer to work off that excess inventory. So some of these markets could remain stuck in the slump after the national numbers show an overall housing recovery.

My 401(k) says I have a 45 percent share holding in "large-cap stocks." What are they?
Wayne C.,Reno, Nev.

"Large cap" is short for large capitalization, which just means these are the biggest companies out there. Capitalization refers to the total value of all stock issued by a given company. To find out what the number is, you just multiply the current stock price by the total number of shares outstanding. 

Why should you care? Though we tend to think of “the stock market” as one big, unified place where people buy and sell stocks (which it is), it’s also a collection of investors who specialize in different types of stocks: big, little, international, old and failing, new and growing rapidly, etc. These are referred to as different “asset classes.” Even when the overall stock market is going up, these different types of stocks may behave very differently.

For example, big “institutional” investors — like pension funds or insurance companies — may favor big-cap stocks because they have so much money to invest they would overwhelm trading in a company with a small market capitalization. Small-cap stocks can be more volatile. Because the total value of one company’s shares is relatively small, money flowing in and out of those shares can have a bigger impact that they would on a much larger company.

The other reason for making these distinctions is that you can also track the relative performance of these different types of stock - and see that they don’t always move together. If U.S. big-cap stocks hit a weak patch, the Dow Jones industrial average — which tracks just 30 of the biggest-cap stocks — may go down. But the “broader market” — as measured by the 500 biggest stocks (the Standard and Poor's 500 index) may be doing just fine. International stocks may be on a tear even though U.S. stocks are limping along.

That’s why money managers recommend “asset class diversification” — a fancy phrase for not putting all your eggs in one basket. The mix depends a lot on how much risk you feel comfortable with.

Large caps can be dull and boring, but some people like dull and boring. By figuring out your comfort level for risk, you can come up with a balance of asset classes that lets you sleep at night. (Other asset classes include bonds, which are less risky than stocks.)

By spreading your money around asset classes that don’t march to the same drummer, you can lower the risk that any given market move will clobber your portfolio.

I have horrible credit. I am currently paying off all of my debts but still cannot get a credit card or a loan. How can I rebuild my credit if no creditor will give me a chance?
Rachel H. Polo, Mo.

By doing what you’re doing long enough – paying off your debts — and doing so consistently enough that lenders will once again feel comfortable lending you money. In other words, you are building back your credit, but it can take years.

There are companies out there that promise to "repair" your credit and raise your score for a fee. In some cases, they’ll correct bad information in your report — something you can do on your own. Others arrange to piggyback your credit history on another borrower with good credit; credit agencies have picked up on the practice and are reworking their review process to close this loophole. (We don’t recommend paying for credit repair.)

Check your report once a year to make sure your new solid track record is being properly recorded. (You can get a free copy of the report from If you really need a credit card, you may be able to get one — with a small limit — by asking for a “secured” card. The bank makes you keep a balance in your savings account equal to your credit limit. That reduces the risk that you’ll stiff them.

But asking a lender to extend you credit — after your track record shows you’re not a reliable borrower — is not a lot different than someone asking to meet you after he had stood you d them up repeatedly. After awhile you’ve stopped trusting them. How long would it take for that person to rebuild your trust? Lenders use data and formulas to make a similar determination. But the basic issue is not that different.

For more on how to improve your credit score, check out the Web site for Fair Isaac & Co. - the people responsible for the widely used FICO credit score.