The National Association of Realtors published their March data on existing home sales and the word that comes to mind is “disappointing”. With everyone from Larry Kudlow to President Obama attempting to buoy our collective spirits about the housing market and the economy with reports of “mustard seeds” or “green sprouts” both euphemisms for selective data points showing signs of eminent recovery.
I don’t buy it. Not for a second and here’s why:
We all know the overall economy will not recover without a housing market recovery coming first. Sadly, the housing market is still miles away.
What’s the best way to determine when we will get a recovery in housing?
I’m glad you asked. I use existing home sales data as it is in my option the best indicator of housing demand. I also use the 6 months of inventory number to put the market at “normal”. Anything above that “normal” number shows less demand and anything below that shows increased demand.
Let’s look at the March numbers now. Months of existing home inventory increased slightly in March despite the decline in units of existing home inventory currently on the market for sale because of the drop in sales activity last month. At the current sales pace, there are 9.8 months of supply of existing homes on the market.
9.8 months of supply is a long way from 6 months. A year ago, we had 10.0 months of supply of existing homes. In 12 months we have only managed to shave .2% off that number.
So how and when do we get back to a housing market that can liquidate it’s supply in six months?
Heck, if I knew that I’d be sitting on my island instead of writing this article. I’ll take a crack at it in a minute, but this is really about NOT believing the “mustard seeds” or the NAR’s spin doctor turned economist, Lawrence Yun when he says nonsensical things like he did back in July of 2008 when the AP quoted him as say…
“I think we are very near to the end of the housing downturn”
No folks the housing recovery in simply not here yet and the unthinkable could be the result if we don’t do something meaningful quickly. The unthinkable is a Japanese style decade long slump were demand is non-existed even with interest rates on the floor.
I know we are “different” than the Japanese and that seems to be the hopeful dismissal everyone uses when the thought American could follow Japan’s lead when it comes to economic disasters. But are we “handling” our disaster any different than the Japanese did? We can be as different as night and day, but we employ the same economic recovery methods, we are indeed the same.
The Obama Plan is doing just that. The Japanese thought it too embarrassing for banks to be shut down or taken over, so they poured money into them instead. We are doing the same. For different reasons, I grant, but the method is the same.
The Japanese central bank put interest rates on the floor. So has the Federal Reserve. In Japan this did not entice typically frugal citizens to borrow money or spend. In America, our over indebtedness and growing ranks of bad credit score citizens won’t be able to borrow or spend. Once again a “difference” without a difference.
Government spending won’t make up the slack for consumers not spending or buying homes. Obama’s recovery plan indicates he seems to think bridge repairs or building windmills is some kind of magic bullet for the economy. It is not. Government capital spending takes years to roll out and even more years to have an effect. Another belief the Japanese government had to learn the hard way as well.
So what’s the answer?
One idea which I could claim is mine, but is not and sadly I can’t remember where I heard it first…is the idea to translate an inherent demand into housing demand. Specifically the demand to emigrate to the US into a housing demand.
In other words, allow emigrants expedited citizenship in exchange for buying a house. They would qualify for the program when the qualified for the loan to buy the house. Since our own citizens can’t or won’t buy, let’s go out and find a ton of folks who can and will.
I think it would work…and work quickly. It is definitely something worth greater study.
What you don’t like my idea? Adding a bunch of new taxpayers and home buyers to the economy by bribing them with US citizenship…something many would jump at if given the chance.
Okay, what’s your idea? Put them in the comments section below.
Until next week…