Between
the decline in jobs and continuing growth in supply it is hard to see how the
local housing market has yet reached a bottom.

In
order to understand why, let’s take a look at the trend and ruminate on how our
current and future situation could impact housing.  Let’s begin with
a recap of what we've written as well as what has been covered in the
papers, shall we?

March 2007 - Understanding the housing crisis

We theorized the bulk of Bermuda’s housing crisis could be
attributed to the lack of preparation in terms of building housing for our
rapidly rising numbers of guest workers.

October 2007 - Housing by the numbers

Here we looked at the approximate market shortage of supply
required to compensate for the numbers of guest workers.

July 2008 - What's ahead for Bermudian real estate?

We then covered how 100% mortgages and interest only loans
inflated demand and then questioned whether the term limit and other
immigration policies triggered job growth to slow with more being moved off
island.

August 2008 - Is Bermuda in a housing bubble?

We looked at the savings vs. loans ratios and wondered how much
Bermudians had been allowed to borrow in comparison to save and what impact
that would have on creating a bubble in housing.

August 2008 - Turns in the housing market

We noted the increasing signs that the market was turning, with
the “executive” moniker steadily being replaced with “REDUCED”.

June 2009 - The bubble bursting

We discussed how government immigration policies, restrictions on
non-Bermudians married to Bermudian home ownership and affordable housing
projects could be contributing to and accelerating the decline.

Ok,
now that we’ve covered that, let’s take a look at what’s been reported in
the local press?

January 2008 – Island property market is holding up says realtor

Fears over an imminent US recession, a weak American dollar and
the sub-prime mortgage crisis are suggested to not have significantly
impacted Bermuda's housing market.

August 2008 - Supply outstripping demand

There is more supply than demand in the Bermuda's residential
property market, in both the sales and rental sectors.

November 2008 - Rental property inventory rises by 30% as tenants shop
around

Properties available for rent in Bermuda have been on the increase
over the past few months, with inventory rising by about 30 percent over each
of the last two years.

January 2009 - Property inventories remain high —but no sign of housing
market collapse says Coldwell Banker

Realtors eager to sustain their income spin away concerns. 
"Bermuda has seen difficult times before, and has weathered the economic
storms to hit its shores,"

June 2009 - Island home prices drop as much as 30 percent

Home owners are dropping prices as much as 30 percent to sell
properties in a continuing real estate slump.

Half as many homes have sold in the past six months compared to
the same period in 2008 and inventory on the Island is mounting as homes sit on
the market for one to two years without buyers.

June 2009 - Condo prices fall 11%

The average price of a condominium in Bermuda has dropped by
approximately 11 percent during this year as the economic downturn impacts
parts of the property market.

So
we’re a year on and where are we now? 

The recent employment report for 2009 suggests significant declines.  As
jobs leave the island it tends to decrease demand, as does a decrease in
local employment numbers as some find themselves unable to afford homes and
others find themselves underwater on their mortgages. 

We’re
likely to continue seeing job declines in 2010 since the many office projects
coming online will mean an oversupply, killing demand for construction and further reducing jobs.  If as we’ve been suspecting our
recession turns out to be primarily locally rather than globally induced we’ll
see continued job losses in international business until policy changes are
made.  These job losses will lead to less spending causing a cascading
effect of further job losses in supporting industries.  All of which will continue
to weigh on housing demand.

We’ve
subsequently got government rolling out and continuing to announce affordable
housing projects as if housing was still trending upwards.  Continued
growth in supply, especially artificial growth via government sponsored
projects, will accelerate the decline in home prices as people looking to
unload will be less able. 

Policy
restrictions and taxes on non-Bermudians married to Bermudians will lend itself
to decreased demand, further exacerbating the decline.  Subsequently we’re
touting the ability for international businesses to buy up fractional ownership
in our hotels and should they do so would encourage further migrations of jobs off island, decreases in
demand in housing and a further cannibalization of our hotel market.

Banks
exhausted the market demand during the boom with 100% and interest only loans
and now that down payments are once again required the raft of people that once could have afforded mortgages no longer can do so.  This will weigh on demand as will people who are seeing income
declines and higher taxes in this recession.

With
all of these factors in consideration it is hard to see how housing will
reverse it’s trend and grow at this point unless significant changes occur in
our economy.  If anything we’ll likely see the market stagnate for a while
and possibly worse (or better if you’re hoping to buy or want to see declines
in Bermuda’s cost of living) we’ll see continued declines.