OfflineHousing Optimists Are "Not Paying Attention" to the Facts, Says Dean Baker.
Among the crowded ranks of economists and market watchers, Dean Baker stands out. Baker presciently called the housing bubble when he published “The Run-up in Home Prices: Is It Real or Is It Another Bubble?” in 2002.
So does our guest Baker see the so-called housing recovery now? "No. I mean I think people that are saying that just aren't paying attention to what's in front of their eyes," says Baker, an American economist and co-director of the Center for Economic and Policy Research.
"I think we’re going to see a big fall-off in purchases for the rest of 2010 and even into 2011,” Baker says. “So the idea that somehow the market is stable, that housing prices will rise anytime soon – it’s really hard to make a case for that."
Baker lays out several reasons for his bearish case:
Programs that lifted the market, including the tax credit for first-time buyers, have expired.
The Federal Reserve is exiting the mortgage market, which will likely push rates to 5.5% to 6% by the end of the year.
There's still an inventory glut and rental rates are falling in many markets, notes Baker, author of "False Profits: Recovering from the Bubble Economy." He says the rental market doesn't lie.
Naturally the housing bulls disagree. Hedge-fund manager John Paulson, for example, said housing prices in hard-hit California will begin to rise this year, setting the stage for a wider recovery, as the FT reports.
So what are the chances of, say, another tax credit or purchase of mortgage-backed securities? "I think they'd be reluctant to do that because of the signal it would send," Baker says in the accompanying clip. "I mean it would send this unambiguous signal things really are bad, worse than had been advertised."
I've provided a link to view a video to see the entire interview (printed report is truncated) and learn about Baker's idea to let struggling homeowners stay in their homes, and prevent home inventory from climbing even higher. For some reason when you click on it, it doesn't open correctly and it won't print in the body of the post properly, so I'm going to spell it out so you can type it in your browser. Baker says a lot of interesting stuff that didn't make it into the print article. The article/video are on the right side of the page.
http://finance DOT yahoo DOT com/tech-ticker
Cindy
Life isn’t about waiting for the storm to pass…
It’s about learning to dance in the rain.
The most difficult thing is the decision to act, the rest is merely tenacity. The fears are paper tigers. You can do anything you decide to do. You can act to change and control your life; and the procedure, the process is its own reward. - Amelia Earhart
"The greatest mistake you can make in life is to continually be afraid you will make one." - Elbert Hubbard
Great article Cindy.
thanks.
Its amazin how confused theso called experts really are about the RE market.
I tend to agree with this guy. I figure the experts are human too. Some are glass half full guys, some glass half empty, some are hard core pragmatists, and others see the market through rose-colored glasses. If Dean Baker saw the bust coming way back in 2002 he might actually have some keen insight into what is going on.
Cindy
Life isn’t about waiting for the storm to pass…
It’s about learning to dance in the rain.
The most difficult thing is the decision to act, the rest is merely tenacity. The fears are paper tigers. You can do anything you decide to do. You can act to change and control your life; and the procedure, the process is its own reward. - Amelia Earhart
"The greatest mistake you can make in life is to continually be afraid you will make one." - Elbert Hubbard
Appears Mr. Suttmeier agrees with Mr. Baker...
Hope You Enjoyed the Housing Recovery...Because It's History
Since the recovery in house prices began last summer, homeowners and real-estate agents have embraced what many believe is a return to normalcy (forever rising prices).
In Wall Street-fueled markets like New York City, properties are once again getting multiple bids, and optimists are chattering about a quick return to old highs. If the trend continues, friends, neighbors, and real-estate agents will no doubt soon start repeating the adage that helped inflate the housing bubble in the first place: Real-estate is always a great investment.
But the trend won't continue, says Richard Suttmeier, strategist at ValuEngine.com.
The temporary increase in prices has been driven by government efforts to prop up the housing market, Suttmeier says, and those measures have come to an end. A new wave of foreclosures is hitting the market. Fannie Mae and Freddie Mac have become black holes into which taxpayers must shovel endless billions just to keep the mortgage engine running. Most importantly, as measured by the Case-Shiller index, housing prices are still way too high.
In most major house-price indexes, prices have already begun to roll over and head back down. Suttmeier thinks this trend will continue. In fact, he thinks prices could fall another 25% nationwide.
Cindy
Life isn’t about waiting for the storm to pass…
It’s about learning to dance in the rain.
The most difficult thing is the decision to act, the rest is merely tenacity. The fears are paper tigers. You can do anything you decide to do. You can act to change and control your life; and the procedure, the process is its own reward. - Amelia Earhart
"The greatest mistake you can make in life is to continually be afraid you will make one." - Elbert Hubbard
I tend to agree with the article as well. I don't see too many reasons for prices to rise for a while.
Just make sure you don't assess a bear market situation and figure a bad investing environment. As long as we know where the market might go, we can plan for it, and pass the cost of dwindling property prices on to our sellers.
For example, if you expect a 3% drop in your market for the coming year, but you would like to flip a home, still do the analysis on the property, and depending on how long it will take for you to complete the flip, pro-rate the 3% and add it as a cost when calculating your expenses. That cost can be passed directly to your seller when you make your initial offer.