A sobering interview was held on CNBC yesterday. An economist named David Rosenberg was predicting that a double dip in the housing market was very possible. Mr. Rosenberg predicted the first major dip in housing when the industry and the overall economy were still booming, so coming from him this warning is significant. He further stated that issues like the Fed's quantitative easing and other government stimulus efforts are stealing the headlines and that the warning clouds he referred to are on the back pages of the news.
The main point made by Mr. Rosenberg to suggest a double dip recession in the housing industry was coming was the simple fact that the inventory of unsold homes on the market is huge. In fact, this number is 3.7 million homes, and this is about eighty percent higher than what would be considered normal. In other words, there is simply too much supply on the market. Needless to say there are large numbers of foreclosed homes on the market.
And more foreclosures will be reaching the housing market soon. There are many homes for which the foreclosure process has not been completed and is ongoing. These homes are referred to as the shadow foreclosure inventory. Some suggest that mortgage lenders have been intentionally slow is completing the foreclosure process on this pending inventory because home prices would fall even more if they were throughst at once onto the market. This would mean the lenders would be required to declare bigger losses than if prices were kept as high as possible.
And it was confirmed just today that prices are heading lower. There is a monthly home price report called the Case-Shiller report which is released on the last Tuesday of each month. The data compiled reports results for two months prior. Today's report, released in December, 2010, gave survey results for October, 2010. Twenty real estate markets are reported upon, and every one had lower home prices in October than they did in September. This is the fourth month in a row of lower prices since the federal government let the first time home buyer's subsidy expire. This caused prices to increase in the spring and summer but has only served to delay the inevitable. 4 markets did show slight price increases on a year over year basis, but 16 were down. The four that went up year over year were San Diego, San Francisco, Los Angeles, and Washington D.C.
There are a lot of negative winds in the face of the housing market. These include lower consumer confidence despite strong Christmas sales, weak job creation figures, and high inventories of unsold homes and the upcoming shadow inventory coming onto the market as discussed above. Lower home prices can only encourage potential buyers and investors to wait longer until they think housing prices have finally hit bottom. Considering all this, a double dip housing recession looks quite plausible.
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