Housing is not the problem, nor the cure
"It’s the economy, stupid."
Those four words uttered in the early 1990s changed the face of a political election. The reversal of fortune for the 1992 presidential candidates had less to do with whether anyone actually thought one politico had a better economic plan than the other. Instead, the chips fell into the lap of whoever recognized the white elephant in the room first: the white elephant being America’s languishing economy at the time.
But for the housing economy, it seems a quick analysis of home price hikes and home sales – and incessant rumors of a market bubble – are irrelevant unless all of these factors are analyzed against the backdrop of the overall economy.
Not to mention, experts in the space have routinely shot down claims that a home price bubble is underway (See Rick Sharga from Auction.com’s take on bubble fears). Unfortunately, the market spending a great deal of time in “investor-driven” territory did little to ease suspicions of a new bubble.
But how do you accurately forecast whether a market is in recovery, barely skating by or at the edge of the abyss? Well, you really can’t, the New York Times bravely proclaims in a new article.
The NYT article goes on to question the value of economics and market forecasting as a whole, declaring the arena more of an art than a science.
And if you’re dead set on it being a science, just ask Ben Bernanke how this theory plays out in reality. The Fed chair is quoted in the Washington Post, circa 2005, saying housing is not in a bubble. That, of course, was just two years shy of the bubble explosion, making Bernanke's 2005 assertion a bad guess at best.
The real estate market is facing a similar slog through unfamiliar territory today and confusion abounds. Good reports are released and then quickly replaced by negative forecasts or less than stellar economic data.
The takeaway: Real estate as a whole is skating along, with the shadow inventory falling 35% on an annualized basis and 20 of the largest states experiencing price increases from May to June as values climbed 1.2%, based on Lender Processing Services data. Year-over-year, home prices also rose 8.4% above 2012 levels in the latest LPS report. Housing remains stable even as other areas of the economy, including manufacturing, remain soft.
And even as housing recovers, the macroeconomic landscape is a hidden danger that cannot be ignored. Those who are unemployed or underemployed will definitely remain a drain on spending and possibly housing at a later date.
Unfortunately, Americans have less to spend overall. The Wall Street Journal highlighted an alarming trend of stagnant wages for U.S. workers on Monday. The rise of part-time workers – especially among the young – is another issue.
And then you have Dick Bove with Rafferty Capital, calling out regulators on CNBC for using “McCarthy-style tactics” in the financial space – tactics that he believes could push more financial services jobs off U.S soil.
When you add it all up, the inevitable summation of the economy’s many parts fails to create a clear picture on whether anyone can accurately guess where real estate and housing will be a year from now.
What is clear is economics certainly seems more art than science, which makes the practice of excessive forecasting a game for ‘a betting man' at best.