A couple of OK months (i.e., not downright bad) in the residential real estate market has the optimists declaring (again!) that a bottom has been reached for home prices. The data are hardly definitive but provide “green shooters” the opportunity to claim that the worst is behind us.
Most of those making this claim have no more basis for doing so than the knowledge that it has to end somewhere. Because the last couple of months were not downward, let’s assume that is now. Some are Obama shills wanting a recovery and using anything non-negative to make their case. Still others have vested interests in making others believe that a housing recovery is underway.
No one has a bigger vested interest in such claims than the National Association of Realtors. Articles like Housing Market Uptrend Expected Through 2014 are typical pieces out of this industry arguing for recovery. There is an entire website devoted to bad forecasts from the NAR. This organization appears to be as objective as the cows in the clever ChickFilA ads encouraging people to eat more chicken.
Nevertheless, the housing collapse will end some day, although that some day may not be today. For an interesting perspective, I suggest Charles Hugh Smith’s recent piece. In his first of a two-part series he provides an interesting analysis of the industry and then concludes:
What can we conclude from this overview of fundamentals?
- The mortgage industry escaped any real consequence from its systemic fraud
- The Status Quo plan to reflate the housing market with super-low mortgage rates and down payments has worked to some degree
- The financial sector’s plan to boost home prices by limiting supply has also worked
- ZIRP has created a “crowded trade” in low-risk investments with attractive yields such as corporate bonds, dividend stocks, and real estate, which is being fueled by a self-reinforcing perception that “the bottom is in”
The question now is will these forces continue pushing prices higher? If so, the bottom may well be in. If these forces deteriorate or lose their effectiveness, then the “green shoots” of investor interest may wither as the U.S. economy joins Europe and Japan by re-entering recession.
It is no foregone conclusion that a housing recovery is underway. And, the scary part is that the Feds are now engaging again in the same unwise policies that precipitated the original problem. In my opinion, these policies reflect desperation and ensure more problems ahead.