The endless commentators and guests on CNBC or the hardly watched Fox Business channel all have predictions on how and when the recession will end. Here are my thoughts.
A lasting recovery will not begin until the housing market recovers. There is only two indicators to watch and that is the months of supply of new homes and the months of supply of existing homes for sale. As of 11/08 there is a 11.5 months supply of new homes and a 11.2 month supply of existing homes. These two indicators are at or near all time highs. And what will spur the purchase of a new or existing home?
1) Consumer Confidence - consumer confidence is directly related to how secure people feel in their jobs. People defintely cannot buy a house if they are unemployed and will be reluctant to buy a house if they fear losing their job. Consumer confidence will not rebound until the job picture stabilizes.
2) We need first time home buyers to return to the market. Right now people are simply swapping houses. The only way the supply of inventory come down is if new, first home buyers enter the market. What's stopping this? It's not the price (prices are coming down), and it's not the interest rate (rates are coming down). The tightening of credit is limiting the number of new buyers into the market. People will actually have to have a down payment; 5-10-maybe 20%.
3) We're still building too many new homes. Unfortunately new housing construction is still too high to eliminate the backlog of new housing. New housing starts for 2009 are estimated to be 646,000 units, still too high.
Keep your eye on the months of housing supply as an indicator of a lasting recovery. (Tim)
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