Here is a good post at Barry Ritholtz’s blog, The Big Picture. It discusses how 22% of all homes in America are underwater. If you account for paid off homes, that number jumps to 33%. Scary. The blog post also notes a recent survey where 31% of Americans would put their home on the market if they see the real estate market stabilize. This means there is a massive shadow inventory of homes. Considering we already have more than 10 months of inventory nationwide, this means that housing prices are not going to be rising any time soon.
In fact, I expect further falls in prices as the option ARM mortgages will be resetting in mass over the next 2 1/2 years. The stock markets have had some nice upward movements because of housing. But, these upward moves were knee jerk reactions. People were optimistic that February was better than January and March better than February. If you look at month-to-month sales historically, it is always that way. February always sees higher sales volumes than January even when housing was bad in 2007 and 2008. So this wasn’t a real green shoot as much as business as usual. The sales are still extremely low, and prices are still falling.
Real estate should have a jump since the government is trying to manipulate prices. First, they provide an $8,000 tax credit for first time homebuyers. Then, the Federal Reserve buys up $300 billion in mortgage backed securities with more to come. This is why mortgage rates are below 5%. As with any government price control, it works over the short term and then fails miserably. Since the Fed is literally printing money to buy these mortgage backed bonds, investors will eventually demand higher interest rates on government bonds, probably a substantial increase, which will push mortgage rates up dramatically. High rates will really hit housing prices as affordability will drop precipitously.
I’d be interested in your ideas, but I think the calls for the housing bottom are premature.