While the belief was that the Government, and Fed’s, interventions would ignite the housing market creating an self-perpetuating recovery in the economy – it did not turn out that way. Today, these repeated intrusions are having a diminished rate of return and the risk now is that interest rates rise shutting potential homebuyers out of the market. It is likely that in 2013 housing will begin to stabilize at historically low levels and the economic contribution will remain fairly weak. The downside risk to that view is the impact of higher taxes, stagnant wage growth, re-defaults of the 6-million modifications and workouts, elevated defaults of underwater homeowners and a slowdown of speculative investment due to reduced profit margins. While many hopes have been pinned on the 2012 stimulus fueled, China investing, and supply-deprived housing recovery as “the” driver of economic growth in 2013 – the data suggest that may be quite a bit of wishful thinking.
…the optimism over the housing recovery has gotten well ahead of the underlying fundamentals. The overarching problem is that the housing market that is almost exclusively dependent on the continued push to artificially suppress interest rates combined with massive amounts of direct stimulus, and incentives, to bailout current homeowners and banks. This intervention is causing an artificial supply suppression which is likely to create a backlash in the future as the current supply/demand conditions are unsustainable.