mybudget360.com has written a piece outlining why housing rates could remain flat for the next 10 years. There are six main arguments:

1) Dual Income Households are Peaking: Housing is generally the biggest expense for a household, and if the trend is to return to a single income home then purchasing power is diminished.

2) According to the Case-Shiller Index, prices are still inflated when measured against household incomes. The buying of mortgage backed securities is keeping prices inflated.

3) Home Prices have fallen 3% in the last 12 months: In a field where prices rarely fall, a 3% drop is significant.  This decrease is attributed to the increase in foreclosures.

4) The Federal Reserve: The Fed is keeping rates low by buying mortgage backed securities in an attempt to keep interest rates low which in turn will increase or at least stabilize the purchasing power of homebuyers.  However, this is an untenable practice.

5) The Japanese Real Estate Bubble: The Japanese went through a market correction much like ours in the mid 90′s, complete with bank bailouts.  It took their economy nearly a decade to recover.

6) Lack of New Homes: Housing starts have been stagnant as the Boomer generation moves to smaller homes and a surplus supply of large rental units negates the need for new homes. There are a lot of available housing units to choose from, so constructing new ones isn’t necessary.

In it’s FY 2011 budget the Obama Administration has proposed changing the Mortgage Interest Deduction for taxpayers in the 33% and 35% tax brackets to a 28% tax credit. While this is projected to raise $318b over 10 years for the Federal Government, this change could affect housing values and any recovery of the already delicate housing market.

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