If you've paid attention to any of the news lately not involving pictures of a certain congressman's hidden but bulging private parts being posted on Twitter, you may have noticed that the housing numbers have been outright dismal. According to the Case-Schiller Housing Price Index, 19 of the 20 major USA housing markets saw prices decline significantly, some going down in double digits. In fact, average home prices have fallen to levels not seen since 2001, and in some markets at levels not seen since the late 1990s. Most economists see this as a sign that the economy is heading towards a double-dip recession. My view, however, is that we have seen the worst of the worst.
Call me a contrarian; call me crazy, call me brain damaged from the heat that I'm currently experiencing in my home in the Midwest, but I see a potential silver lining in the latest housing numbers. As indicated earlier, the Case-Schiller Housing Price Index shows average home prices have fallen to year 2001 levels. It was in 2002 that the housing bubble which led us to our current economic predicament first got inflated by the Feds when they eased interest rates to stave off the then-horrific economic recession caused by the bursting of the tech/dotcom bubble. Thanks to the reduction in interest rates by the Fed plus some bad fiscal policy by the last administration, housing prices skyrocketed relative to the rest of the economy, and this unsustainable outcome eventually collapsed on itself in the fall of 2008. Since then, housing prices have fallen sharply, unemployment soared, and foreclosures spiraled out of control, so much so that the major banks had to be bailed out by the taxpayers.
So why do I see good news out of these latest numbers? Because housing prices as they stand today probably represent the true value of the market. Combine this with the ongoing gloomy news in the mainstream media about how there's no end in sight for housing prices to fall, and the signs may show that the bottom has been reached.
Does this mean that housing should turn around very soon? Hardly. Yet while I am hopeful about the latest numbers, there's still a very real possibility that housing prices could fall even further if certain steps aren't taken to improve the economy for the middle and working classes. First of all, more jobs need to be created so that unemployment can be eased for those currently out of work. Second, homeowners currently stuck in underwater mortgages need to be allowed to modify and refinance their mortgages to realistic price levels so they can stay in their homes while getting some financial relief. Third, the major banks need to take their bitter medicine and write down their losses from their shadow inventory of foreclosed homes instead of paying out billion dollar bonuses to the very people who created this crisis in the first place. Fourth, our elected officials on Capitol Hill need to quit the childish gamesmanship and start acting like adults and deal with the real economic issues facing working Americans and not catering to the whims of Wall Street. Only then will this silver lining part the gloomy clouds hanging over the housing market and lead us back into recovery.