Hope for the Housing Market?

by Sam Staley

“The housing market began to cool down in 2005, seriously tank in 2007, and completely crashed in 2008. Now, in 2012, it looks like it will be another couple of years before a real recovery takes place. If that doesn’t qualify as an industry depression, I’m not sure what does.

So, in some ways, it’s not surprising that journalists are looking to anything to find a silver lining. The Washington Post is no exception, citing Moody’s chief economist Mark Zandi and a few others, including Washington, D.C.–area realtors. The story also notes that homebuilder confidence is at it’s highest since 2007. The only problem here is that all these folks have an incentive to have a positive outlook because their livelihoods depend on an uptick in the housing market. Moreover, the Washington, D.C., area has a notoriously robust housing market, in part because of the growth of federal government and programs, so it’s hardly a good example of national trends.

A more sobering take on the current state of the housing market was penned by Reason Foundation’s Anthony Randazzo last week (March 23, 2012) where he notes that mortgage rates are likely to tick higher as the Fed’s policy of quantitative easing runs its course, the shadow inventory of foreclosed homes is still extraordinarily high, and the recovery is sluggish.

What’s missing in the optimism of some housing economists is the fact that the bubble was in fact a bubble, where housing demand was pushed far beyond what would be sustainable in terms of existing housing turnover and building rates. In days before the bubble, household spending on housing was investment in a home, not a financial asset. The homebuilding industry isn’t going to disappear, but we aren’t, and shouldn’t, expect a return to the blistering pace of the 2000s.

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