Pete the Banker: Media Headlines, Administration Optimism and the Real Story on the Housing Market

Pete the Banker:
Beware the overwhelmingly positive media coverage about April Housing Sales and Prices.  Informed commentators on several housing blog sites are cautioning that the future is not that rosy.  Since April 30, new applications for residential mortgages have plunged despite record low rates.  In fashion similar to Automobile bailout — “Cash for Clunkers”, the Federal Home Purchaser’s Tax Credit may have stimulated current home purchases at the expense of future housing demand. 
The Mass Media may simply be grasping at any positive sign to support the Administration’s claims of economic improvement, but despite their optimism, industry insiders suggest at best the headlines are premature.  Stan Humphries,’s chief economist points suggest the press coverage is guilty of reinforcing FOUR MYTHS:

1. The housing recession is over.
2. After markets hit bottom, prices will rebound to boom levels.
3. The worst of the foreclosure mess is behind us.
4. The tax credits saved the housing market.

Over the next 12 – 18 months caution is warranted (here).  There is an inventory overhang of some 4 million+ homes for sale, seven million homeowners are at least one payment delinquent nationally, and nearly a quarter of homes are thought to be worth less than the current balance on the mortgage.  As homes worm their way through the foreclosure or modification process they represent a potential supply overhang on the market.
In the longer term– two or more years from now– the residential home market will begin to improve since new home construction has languished for over 24 months, which will help constrain future housing supply. 
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