Housing: The Myth of 'Less Bad' 10 comments
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Today's release of the Case Shiller home price index (CS) shows that prices fell a better-than-estimated 11.3% year-over-year and actually increased 1.2% from the prior month. We can expect all the perma-bulls to climb atop their soapboxes and declare that housing and the economy have finally turned positive and the stock market will continue marching higher. At the center of their argument is the belief that a slowing rate of decline, where economic data is "less bad", equates to good news. I have never agreed with this view and a deeper look at the data explains why.
As first outlined in EPIC Insights, the 11.3% year-over-year decline is the lowest since January, 2008 and the month-over-month increase is positive, but the Case Shiller Index still remains 29% below its 2006 peak and 3% lower on a year-to-date basis. Examine other housing data and the story is the same. New home sales tomorrow are expected to increase to 440,000. This would be the sixth consecutive monthly increase. However, when you consider the average going back to 1963 is 688,000 and that 440,000 is where new home sales bottomed in every prior recession, the data is not encouraging.
The improvement we have seen in recent months is nothing more than the economy moving from terrible to bad. The eventual step to good is well down the road and when we evaluate what gave stability to the housing market, caution is warranted.
If artificially low interest rates, home buyer tax credits, and foreclosure moratoriums could not drive prices higher and lead to a boom in home sales, what hope is there for a stimulus-free recovery? As the aftermath of the cash-for-clunkers program showed, when the government stops supporting consumption, sales collapse. With most of the housing stimulus set to expire in coming months, those who think a pending leap in housing prices is imminent should reconsider. As I often say, less bad is not the same thing as good.
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This article has 10 comments:
In all of the recoveries I know of, recovery was fueled by an industry or combination of industries. Whether it was steel, autos, technology, housing, there was some industry driving it. What is the idustry driving this recovery, Finance? I think not. If your going to throw money somewhere, throw it at jobs, not proping up a symptom of the illness.
Maybe the demand for money printing presses will drive the recovery.
how add to this:
1) 13,000,000 bank controlled homes that are or will be REOs.
2) Unemployment.
3) Rising rates after the fed stops buying mortgage backed securities in 03/10
4) Rise in
My favorite so far is "rate of decline continues to improve", now what the f**k is that supposed to mean?
Similar to what the National Association of Realtors released; "big rebound in existing home sales shows first time buyer momentum".
NO. Existing home sales fell by 5.4% last month, despite the nonsense you have read elsewhere. Home sales did not rebound - that was purely the result of seasonal adjustments.
If it's less worse, scream and shout!!!!
They expect further price declines of up to 10%. Not good for banks, consumers, emerging markets.
www.planbeconomics.com.../