Along with the rest of the investment community, I’m glad to see the mid-August jitters have moved on and that Wall Street is in a more “normal” mode. While I don’t believe the storm is completely over, there are rays of hope peaking through. The credit crisis that slammed the front-pages in August seems to have been, for the time-being, subdued by the liquidity provided by the Fed. And that is their job as the monetary policy makers. From that stand-point, job well-done.
So what happens now? There is still a HUGE back-log of unsold houses on the market. The banks and credit investors are feeling burned (for good reason) and are now much more risk averse than a year ago. The reports from the National Association of Realtors (NAR) are still extremely negative. Sales are down, prices dropping, and more importantly, pending sales are really really down. This is the strongest predictor for sales in the upcoming 60 days that we have. Read: More bad times ahead for the housing market.
The unanswered question still remains: How big will this housing depression be on the overall economy. It seems to me that every other week the market changes it’s mind on this question. The reality is that nobody really knows. What is giving me more optimism this week is the fact that people are not talking about inflation anymore. Additionally, we’re seeing job loss for the first time in years. While earlier in the year there was serious concern about inflation raised by the Fed at several meetings the more recent readings have demonstrated inflation to be “somewhat in check.” most recently, the job loss report is showing layoffs. This gives the Fed a little room to, perhaps, lower rates. In turn, this should help the housing market a bit and soften the landing.
It’s an interesting chain of events, precariously balanced on the predictions of inflation. The minute inflation shows it’s nasty head, the Fed will have to make moves to reduce it (read: Raise rates). This will have a negative effect on Wall Street and the housing market. If, on the other hand, inflation remains in-check, perhaps we can pull off the softer landing everybody has been hoping for.
Regardless of where the Fed goes, one thing is for certain. The housing market is not going to pick up again in 2007. And more experts now agree it will not likely be moving up in 2008 either. A few have now been quoted as saying we have 5 to 10 years until we see a full recovery. I am glad to hear the NAR and other experts finally telling the truth about the housing market situation. It seems they were slow to get to this point, but with the negative news so abundant in the last 8 weeks they have been forced to come clean.
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