Why the Housing Market Has Yet to Hit Rock Bottom

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Jae C. Hong / AP

Housing has not hit rock bottom, no matter how bad it looks.

News came out that pending home sales moved up 6.3% in December and this caused a lot of conversation about the housing market finding a bottom.

The rapidly falling prices of homes and lower interest rates on mortgages got the credit for the positive move. (See pictures of modernist houses for rent.)

Only an idiot would think it will last.

The housing recovery is still based on two factors. One is employment and the other is easier credit.

There are absolutely no signs that the unemployment figures will be better for January. Some analysts believe they will jump by 600,000. This does not include people who have effectively stopped looking for work or any change in farm payrolls. The most pessimistic economists see 10% of the non-farm work force on the streets by early next year.That means more than two million more people will be without jobs.

The notion that low interest rates mean easier credit is based on a fool's analysis that banks will make risky loans just because their cost of money has dropped; There is almost certainly no truth in that. Many banks still want to keep as much capital as they can in the event of future losses. The same bankers may have been slow-minded enough to dump money into derivatives, but they are shrewd enough to stay out of lending into a real estate market which may well still be dropping.

The Senate is now trying to work into law a provision that would give people a $15,000 tax credit for buying a new home. This would substantially expand the cost of the bailout, if people are willing to take advantage of it. The average American who still bothers to read a newspaper is acutely aware that most signs point to a housing market which is still spiraling down, no matter what pending home sales numbers say. All of the "For Sale" signs in most neighborhoods and auctions of foreclosed properties are a sure indication that housing supply is still extremely bloated.

Potential home buyers are sitting on information that some economists want to ignore. The factors which would lead to a housing recovery are nowhere to be seen. The government will not have to write many $15,000 checks. At least that will keep the deficit down.

Douglas A. McIntyre

Read "Four Steps to Ending the Foreclosure Crisis."

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