Of course, what most prospective home buyers want to know is whether prices are going to go up or not. No one wants to plunk down $300,000 on a home that will only be worth $240,000 by 2013. That's the nightmare scenario that everyone wants to avoid at all cost. But how does one decide whether it's safe to dip their feet back in the water again, especially when data is sending such mixed messages? (Case-Shiller just reported in June that housing prices increased 0.5% year-over-year, and many reputable analysts are saying we've reached a "bottom" in prices.)
Sure it's confusing, but just think of how much effort and maneuvering it took to cause that slight uptick in prices. First, as we already said, the banks are withholding distressed inventory (which makes it look like prices are rising). Second, as Mark Hanson points out, the historic low interest rates represent a "15% year-over-year increase in purchasing power," which means that the average buyer can get 15% more home for his dough. And, STILL -- with all that extra stimulus -- prices only went up a measly 0.5%. That means that -- without the fake interest rates and inventory fiddling -- there's zero interest in housing. The market is a morgue.
So, how does this end?
It all depends on how the banks manage the flow of their distressed properties. There's a terrific article on OC Housing News on this very topic. Here's an excerpt:
"Prices may go up or they may go down depending on how well bank asset managers control the flow. The bottom callers are all placing their faith in the skills of these asset managers rather than in the forces of the market.... However, this also means lenders aren't clearing out the existing shadow inventory and are actually adding to it. This will likely prompt lenders to increase foreclosure processing rates to take advantage of the higher prices...."In a normal market, millions of individual owners control the supply, and they don't act with any coordinated effort. Today, a cartel of a few major banks control the bulk of our housing inventory. These banks openly collude on prices with the blessing of our government. Since cartel arrangements are inherently unstable, there is no telling how this plays out." ("Liquidating shadow inventory requires managing absorption rates" OC Housing News)
So, supply is huge, demand is weak, and the banks are gaming the system. That says it all, doesn't it?
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