Tuesday, January 4, 2011

Housing - moving along the bottom

Caroline Baum provides a sobering Bloomberg commentary on the housing market to start the new year. Simply put, there is no housing recovery in the US. When government subsidies were available through housing tax credit, buyers responded in 2009 and early 2010. Now that there are no tax credits, buyers have disappeared. The laws of supply and demand take over. Prices will have to fall to clear the excess inventory. This excess is not just want is on the market but the hidden inventory of those who want to move but cannot afford the financial hit of a sale. New construction will not occur until the existing home inventory is brought under control. Housing sentiment, sales, and starts are all flat and not rising enough to provide a gain for the economy. Prices have stabilized but are also flat. There is no wealth effect from the housing market.

There is little that can be done about this. New tax credits will only shift the loses to taxpayers. Rates are rising so cheap mortgages are not likely to help. Inflation would be helpful for homeowners but not at 2%.

This housing market is what we have seen in other countries when there is a balance sheet or financial recession. A recovery takes time.

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