'Very Likely Over'

By Dave Fratello | September 15th, 2009
Today's a day to mark in the housing-led recession of 2007-09, because Fed Chairman Ben Bernanke has declared it "very likely over," at least "from a technical perspective." (Link is to a Bloomberg story.)

That cautious caveat is meant as a recognition that the jobs picture doesn't look good, and noticeable growth may take a long time to return. But, "technically" over – they can back that up, partly on the strength of home and car sales subsidized by the taxpayers.

The funny part is, Bernanke's late to the parade. Markets have been mellowing for months, rising 40% or more since lows in March this year. Jitters gone, moods improving, values flattening, waiting for another sign.

There are plenty of yellow flags out there, but for now we're collectively putting those in the background.

So, if the economy is looking up, how about housing?

We know the Case-Shiller national data are starting to suggest a bottom is forming; declines have slowed or begun to reverse in those multi-city indices.

But much analysis separates the prospective end of the current economic recession from the end of house price declines. Different dynamics at work. California's hardest-hit markets, for instance, don't seem to be getting much healthier.

Remember it was the California Association of Realtors, no pessimists there, recently saying that "another surge of foreclosures is expected later this year." There have been artificial brakes on the foreclosure process that have slowed, not prevented, lots of homeowners from surrendering their keys.

More broadly, a once-obscure bear, now known as the woman who predicted everything, Meredith Whitney, says housing prices are set to drop another 25% from where they stand today. (Link is to the Wall Street Journal.) Her statement, in relevant part:
I think there is no doubt that home prices will go down dramatically from here, it’s just a question of when… If you look at the drivers for unemployment, I don’t see that reversing very soon.
Suffice it to say, opinions vary on the future of housing generally.

Today, L.A. County home prices are down a quarter or more from their peaks, the phrase "short sale" appears regularly in MB listings and we've had more than a few REOs in town, even investor flips of bank-owned properties.

On the streets of MB, we keep hearing profound optimism that the bottom is in and our local RE market has largely weathered the storm. Sometimes we hear it said emphatically and without qualification. For some, the evidence is already there.

News that the recession is "very likely over" is going to feed that sort of hopeful sentiment further. And psychology matters. Though not quite as much as jobs and credit.

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