The Housing Mirage

Prices are up, but the market is far from healthy. We're missing key elements of a true recovery

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But while easing the mortgage drought would help stoke a broader housing recovery, a more important factor is the underlying economic condition of the U.S. To have a sustainable and healthy market, all that really matters is employment, says Miller. "There's no quick fix. You need higher employment and wages [to support housing consumption] and looser credit," he says. "If we see some real economic growth over the next two to three years, then we'll know the housing recovery is real. Until then, we're in what I call a precovery."

It's worth keeping in mind that this precovery has been underwritten by the government at historically unprecedented levels. Every month, the Federal Reserve is purchasing $40 billion worth of mortgage-backed securities. And Freddie Mac and Fannie Mae stand behind the bulk of new mortgages. Many would argue that former Treasury Secretary Timothy Geithner and other government officials should have done more for homeowners rather than banks, and sooner. If they had, we would likely be further along in the healing process than we are now. You could certainly argue that completing Dodd-Frank and removing that uncertainty about the structure of the mortgage market would also be a big help.

But perhaps the biggest takeaway from the current housing "boom" is that the conventional wisdom no longer holds. It has long been said that you can't have a sustainable economic recovery in the U.S. until the housing market is back. In truth, it may be the other way around. Until you have more jobs, rising wages and a middle class that can afford to take out a mortgage from a bank that will actually lend to it, you can't have a real housing recovery.

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