Why a Housing Recovery Requires Lower Prices

Mark Gongloff touches upon some truisms in today’s Ahead of the Tape column in the WSJ. Most significantly, he quotes Rosie on the Shadow Inventory, which when you include REOs and spec investors waiting to put their involuntary rentals back on the market, sends total inventory back over 12 months suppy.

But he mentions something I find curious: “A consensus is forming that home sales and construction are at long last bottoming and may soon rise. Economists largely expect this week’s numbers to affirm that notion.”

Consensus? Why should investors — or homeowners, for that matter — care much about the opinion representing the consensus view? That consensus missed the credit bubble as it formed, wrongly believed the sub-prime issue were “contained,” and utterly missed the top in housing. If you followed th consensus, o lost 50% of yuor money last year, saw your home value drop 30%, and generally got mangled in most asset classes other than Bonds, Cash and Gold.

Indeed, its hard to think of anything the “consensus” view got right when it comes to Housing and credit over the past decade.

As to halting the fall of prices, I believe that’s backwards — we want prices to normalize, so that more people can afford homes. Until that happens, Housing cannot begin to recover.

This week’s data: S&P Case-Shiller HPI today at 9:00am; Existing Home Sales Wednesday at 10:00am; New Home Sales Thursday at 10:00am.


More Job Losses = Greater Foreclosures (May 25, 2009)

NAR Housing Affordability Index is Worthless (August 13th, 2008)

True Housing Recovery Depends on Prices
Mark Gongloff
WSJ, May 26, 2009

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