Spring brings optimism to our economic senses, and that’s probably a good thing. Pessimism as it relates to the housing market usually becomes a self fulfilling prophecy. After all, what is property value but an intangible feeling about a property compared to others based on future expectations (and of course, a lot of other things, but bear with me).
I was invited to speak to a group of successful real estate professionals yesterday and mingled with many before I spoke. I was struck by many comments along the lines of: “in the last week and a half, the market seems to have woken up…”
After all, it is spring. It is sunny outside. Optimism encroaches on judgement and sensibilities. Buyers venture out of their winter hibernation and sellers want to move on. It is a good feeling.
I also have observed the same optimism in the past few weeks covering the reporting of economic conditions which has been confusing. The economic numbers continue to show trouble ahead, but the interpretations are clearly more optimistic than just a month ago.
David Leonhardt has a very good article in today’s New York Times called Fearing Red Herring In the Data.
Only a month ago, a recession looked inevitable. Job cuts were picking up speed, and stock prices were falling. The Federal Reserve was cutting its benchmark interest rate rapidly, in an effort to keep the downturn from snowballing. But the notion that the economy could avoid a recession altogether seemed fanciful.
It looks less fanciful today. The economic news hasn’t exactly been sunny lately, but there also haven’t been any nasty new surprises. If anything, the economy seems to have stabilized. The pace of layoffs has eased a bit, stocks have risen and the Fed has signaled that the rate cuts are over for now.
Apparently the sunny side perspective is based on the reduced amount of economic catastrophes that are being announced each day. In other words, the bad news has stabilized and therefore we are approaching some sort of bottom.
The article mentions InTrade, which scored a PR coup a few days ago by being the feature story on ABC News’ 20/20. I was going to write a post about InTrade during the broadcast but the web site was overwhelmed by traffic and I couldn’t load it.
InTrade is a consumer based trading market that allows anyone to bet on the outcome of events like whether the economy is in recession or who will win the Democratic presidential nomination. Leonhardt mentions that investors now only give a 29% chance that the ecoomy will go into a recession. I believe we are actually in a recession or flirting on the edge of one.
For the life of me, I am not aware of any current economic condition that is going to stimulate new demand for housing in the immediate future above and beyond current levels. No tangible benefits have been introduced by the government to soften the damage the housing market has inflicted on the economy. It’s a tough nut to crack.
At least on a federal level, I do find solace in the fact that everyone seems to have woken up to the condition of the housing market.
Two types of housing bottoms:
Bottom 1 — The point where the decline in real estate markets is not accelerating
Bottom 2 — The point where both real estate market prices and activity stop declining
They both represent very different conditions and once the first bottom is reached, there is no telling how long the lag to the second bottom will be.
Still, it is spring.