Wednesday, March 23, 2011

Can you have a Double Dip without a Recovery?

CNBC's Real Estate Correspondent refers to the recent Housing numbers as a "Double Dip".  My question is, where was the recovery, from which this is a dip?  The small amount of activity driven by the New Buyer Tax Credit?  That was simply a forestalling of the fact that prices needed to fall.

Personally, I have seen lots of bullish information for house prices.  The fact is that housing starts are a historic lows - which means that new supply is well below the rate of household formation, and that unoccupied housing stock is being absorbed.  In the video, Gary Shilling talks about the surge of people who have returned to live with their parents, which he sees as bad, since it creates a temporary decrease in the number of occupied units, but this is the equivalent of "sideline demand" which can be tapped in a year or two, either as buyers, for those that can repair credit and save and be in a position to reenter the market, or as renters.

Finally, the best sign for a bull market it simply lower prices.  If, as many doomsayers suggest, we are experiencing massive debasement of the US dollar and are likely to get inflation, then rents, which constitute some 30% of CPI, will also be rising.  This will have the effect of making real estate attractive as an investment or, in the case of owner occupiers, as a hedge against higher future rents.  Against this, are likely to be higher mortgage costs, of course, but on the other hand, these are still tax deductable, and if tax rates rise to address government deficits (which I think likely), this is again a positive for housing.

All this leaves me asking the question, though: why does the media insist on seeing lower housing prices as bad?  Lower prices for consumable goods are positive - cheaper housing is a POSITIVE outcome, it means people can afford more house, just as lower prices for electronics, computers, or the proverbial hamburger mean higher living standards, so do lower housing prices.

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