The Conversation On US Housing Needs A Dose Of Reality

I have to admit that I cringe whenever I hear about a politician, pundit, analyst, etc, talking about a housing market recovery, or protecting home values, because I feel it sets the wrong expectations in the minds of homeowners. More specifically it seems to come from a place that seems to believe that the housing market gains of the bubble era were indeed legitimate, as opposed to spurious and caused by a combination of over-speculation, bad lending, bad borrowing and nonsensical expectations.

While it may not be what people want to hear, the real conversation needs to be around the housing market stabilizing  in terms of prices hitting bottom, in addition to acknowledging that prices were inflated during the boom and the gains weren’t real. During the boom prices didn’t increase based on valid market fundamentals, they increased due a combination of overspending, bad lending, speculation, exotic loans, etc, etc. Even without an economic downturn, the removal of the aforementioned factors would’ve put downwards pressure on housing prices for a rather extended time period.

This is especially true when you consider the inventory problem, and the prevalence of empty housing developments that were primarily built in response to demand from speculators than from people in need of a place to live.

The conversation around real estate needs to confront the fact that housing prices simply aren’t going to recover any time soon. Because history has shown that it can take over a decade for prices to recover from a crash under normal circumstances, and the factors that caused the most bubble were unique, widespread and arguably extreme. The likely scenario is that prices will overshoot pre-bubble levels on the way down, stabilize and then we’ll return to a period of appreciation that is more in line with historical norms. As a result it will probably be the decade after next before housing prices recover in many markets, and other markets may not ever see a full-fledged recovery.

In other words: the conversation needs to revolve around helping people adjust to and cope with the new reality they live in, as opposed to providing them with false hopes and/or a skewed sense of reality.

More importantly nothing I’ve said in this blog post constitutes something that is new or innovative, it’s information that has been readily available on this blog and others, multiple financial article, books, news reports, etc. The problem is that this information isn’t readily provided by the mainstream media, nor is it acknowledged by our politicians and policy makers.

It’s high time the mainstream media, politicians and policy makers start confronting/presenting the truth the around the housing crisis, so that average person can not only better understand what’s going on, but be able to start adjusting to the new reality they now live in.

Disclosure: at the time of publishing the author didn’t own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn’t be viewed as financial or investment advice.

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