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Law of Reciprocal Action Meets Hopeful Enthusiasm

For every action, there is an equal and opposite reaction [1]. In other words, for housing to reach a bottom, something has to happen to cause it to change direction.

Something has to change or improve. In other words, something has to get better before housing does.

Caroline Baum at Bloomberg, one of my favorite columnists, pens a witty take on the very notion that something needs to improve, in order for housing to improve called Snoozing in Econ 101 Is Hazardous to Your Health [2]. She provides the hopeful statements made by many these days and applies good old Econ 101 logic to them – I embellish each point a bit as well:

Misleading logic is plentiful these days
Home sales won’t pick up until housing prices stop falling. What could possibly make people start buying again? According to the confused thinking above, prices will levitate spontaneously, encouraging buyers back into the market. Sales activity leads prices. Cart before the horse can’t move a market. You need activity.

Housing affordability has turned up, which is a harbinger of stronger sales ahead. Affordability is only up in the formulaic sense. Underwriting requirements are at a far higher level now than before so it is not apples and oranges [3]. In other words, the buying power has been weakened by elevation of standards. This becomes a self-fulfilling prophecy [4]because housing markets (think of it as collateral for mortgages) gets rattled by more conservative lending practices after it was built up by a sustained period without real underwriting standards.

Governments continue to interfere with the law of supply and demand; that’s to be expected. What’s surprising is that so many practitioners of the dismal science [Economics] can’t seem to get it right either.

Prices continue to slide [5]

If we can all hang in there, the US population will have 700 million more people in 2100 [6]and a good portion of the South Florida real estate market can finally be absorbed by then (call me optimistic).

Acronym of the week: YAWN: Young and Wealthy but Normal [7] Better yet – my modification… PAWN: Poor and Worried but Normal