The housing market is deflationists’ ace in the hole. There is no way inflation can re-ignite as long as housing prices continue to plunge, they argue. And housing won’t recovery as long as unemployment remains high. And unemployment will remain high for years. Or so the argument goes.
There is growing evidence, however, that housing prices may be in the process of bottoming. Consider:
- The Case-Shiller index is up three months in a row. The latest montly increase, 1.6 percent, is the biggest one-month jump in more than four years.
- Pending sales of existing homes are increasing.
- Inventory of new homes is dropping fast.
- Mortgage rates are at a four-month low.
- A number of cities–Boston, Phoenix, Washington DC, Vancouver, Canada, Sarasota, Fla., El Cajon, Calif., Santa Ana, Calif.–are seeing bidding wars (mostly for low-end housing).
- Shares of homebuilding companies are well off their mid-September highs, but remain up nearly 40 percent since early July 2009.
Granted, all of these encouraging signs could abruptly come to an end if the homebuyer tax credit isn’t extended. And part of the uptick in prices may be seasonal. And high-end properties aren’t selling as fast as low-end ones. And there are lots of foreclosures in the pipeline. And mortgage rates could quickly rise if inflationary expectations increase.
Nevertheless, October 2009 isn’t October 2007 and it isn’t October 2008. We have already experienced dramatic declines in housing prices in many markets, and although it’s certainly possible we will see further declines, deflationists must accept the possibility that the market for housing — especially low-end housing — may be at or near the bottom.
Dr. Duru