Don’t pop those corks just yet. We may have ducked a few thunderheads, but we still have enormous storm clouds ahead.
The news that existing home sales rose in February at the fastest rate in some six years, certainly brings with it the hope that the bottom (or end) to this mortgage caused misery is nearing.
While hope is good, false hope is not so good.
Let’s take a closer look.
Forty to fourty-five percent of the sales last month were “distressed sales” –according to the National Association of Realtors. And these homes tend to sell at about 20 percent less than the so-called “normal” market place, says NAR chief economist Lawrence Yun in an interview with Reuters.
The people buying these bargains are atypical in numerous ways…they have really good credit ratings, jobs or personal wealth, and the ability to plop down upfront money.
The Obama administration, of course, hopes its just revealed plan for a joint private investor/government effort to buy up $1 trillion in toxic assests will further stimulate the housing market (and every other market) by unfreezing credit.
Although Wall Street reacted with great joy to this announcement, it is not at all certain the plan will work (which is not to say it shouldn’t be tried…just that it might not work!)…
The key question remains whether banks will be willing to sell assests a the lower prices set by bidding, or hold on to them hoping to weather the storm?
There is also no way of knowing yet how the public will react to this plan….The A.I.G mess didn’t go over big, did it?
Already one leading critic, New York Times columnist Paul Krugman, a Nobel-Prize- winning economist, is blasting the plan claiming investors will be able to profit should asset values increase but walk away if they fall, says a Reuters report quoting Krugman’s column.
So, much can go wrong..and, considering the laws that seem to govern the universe, probably will.
Hope, yes. Blind hope, no.
Photo Credit: ToastyKen