Johnc

Nowhere Near a Real Estate Bottom

I liked this article because it pointed out an "article of faith" which I have always had trouble accepting...that homeownership is the best investment. It has a place, but is it logical to expect so much from bricks and sticks?

I disagree that the housing recession will drag on too long precisely because it is an illiquid, by appointment only market. But that doesn't detract from the author's second good point that the housing bottom will lag the economic bottom by a decent interval and we shouldn't get suckered.

Since college, the longest time I have lived at one address has been 5 years. While I made out on home ownership during those 5 years, I worried about getting caught in the wrong end of a cycle. In 20/20 hindsight, I was a fool. I should have bought two or three houses, spent more time at Home Depot and saved myself alot of mental effort looking at equity markets.

I think this recession will bring a healthy amount of skepticism into the equation and the result will be a significantly higher level of household savings as it becomes obvious that there is no "magic bullet" for family financial (including retirement) planning. That new pool of savings will transform US national and trade accounts far more significantly than the misguided officials who think we can temporarily devalue our way out of our problems.

As global investors, that one change will dramatically reorder the economic landscape. No longer can emerging markets count on unlimited consumer demand in the US. Places like China and India will spend more money on infrastructure to build domestic economies capable of satisfying the needs of growing middle classes in those countries. I could go on with other changes, but you get the idea...the next 3 years will see the markets trace a different path from the past 3.

The US government can and should engage in activities that help the market to clear. It's big and powerful and quite frankly, we pay these people to keep an eye on this sort of thing. However, Congress and the officials at Treasury and the FED should be very careful about trying to "fix" the market with brilliant new schemes. Those brilliant new schemes tend to create more barriers than they tear down.

And lack of barriers is the key. The globe is awash with fiat money but not really liquidity. Liquidity implies movement and the near frozen inner workings of the credit system have kept that cash from working its magic. Money may be the root of all evil and we may be a bit sore we handed so much over to our pals in the Middle East and China, but that investment flow, combined with a more subdued US consumer will bring the US back into the economic game...probably in the lead.