Summary
Call me a cynic, but I am skeptical when the author of an article declaring that the housing market has bottomed works for a hedge fund that doesn't have to declare what investments they currently hold or what role they had in the subprime mortgage debacle. In my opinion, this article declaring that the housing crisis is over ignores reality and offends common sense. The housing crisis is not over and we have not yet hit bottom.
Analysis
Based on what I can see, the housing crisis continues to accelerate as evidenced by increased filings of personal bankruptcy, increased filings of foreclosures, default rates that are still trending upward, and higher unemployment claims. Did everyone not see Circuit City's problems coming? After all, if accessing home equity through refinancing a home was driving consumer spending on big ticket items like electronics, is it really a surprise that Circuit City hit the wall. If you need more proof, look at auto sales and boat sales, two other areas where consumers used home equity to finance new and often frivolous purchases.
The fact that the huge inventory of unsold homes has dropped is due as much to builders going under and not building anything new as it is to increased sales activity. Every realtor I've spoken to says that while traffic is up and people are looking, offers are not and sales are not.
Pure and simple, the housing crisis cannot be over until the consumer returns to the market and the consumer cannot and will not start buying until the capital markets unclog. The fact that interest rates are lower is meaningless since underwriting standards are so much higher that loan approvals are stuck in neutral at best and possibly even remain in reverse in certain markets. The securitization pipeline is blocked and even super strength pipe cleaner doesn't seem to have any impact.
In my opinion Wall Street cannot and will not resume regular sales of residential mortgage securities until the middle of 2009 and until then the housing market will continue to flounder. Why mid-2009? It's pretty simple actually. By then Congress and the new President will have been dating for 6 months and Wall Street will know how that relationship is developing and what the new "partners" will be doing about Iraq, Iran, the budget deficit, and so on. Once the boys on the street understand what they have to underwrite in the way of risk, the securitization pipeline will unclog and consumers can start thinking about buying homes again.
Until then you can throw around all the statistics you want about affordability ratios, debt to income ratios, interest rates, and how many months of inventory exist, but what you can't do easily is sell anyone a house.
