Housing Recovery – Trick Or Treat?



With Halloween 2012 fast approaching, the news of a housing recovery is beginning to permeate the media. But the real question is whether this is a yummy treat we will enjoy in the days ahead, or just a trick designed to fool us into giving candy to those in disguise.

Image by paparutzi via flickr.com

The housing market has many moving parts, and the various parts benefit from good housing news in various ways.

For example, the National Association of Realtors are known for their ability to spin a positive report for housing from virtually any data, no matter how negative it may appear.

Witness the 2008 housing crisis. NAR Chief Economist, Lawrence Yun states in May of 2008 in Realtor Magazine, that “the housing market would begin to recover later in the year”. Of course we all know that by the end of 2008 the housing market was well on it’s way to a slump and foreclosure crisis that would surpass even the great depression of the 1930’s, and lead to a banking crisis which we are still working through today.

I’d say that Yun’s 2008 prediction was a “trick” not a “treat”, and was clearly an attempt to put a happy face on a very depressed housing market that was to get much worse as the months went by.

Just a year or so earlier, Yun had replaced former NAR Chief Economist David Lereah, who wrote a now infamous book entitled “Why The Real Estate Boom Will Never Bust” in 2007. The book proved to be a big “trick” that ultimately destroyed Lereah’s credibility as an expert on the housing market.

By now, most observers of the NAR put little stock in their ability to accurately predict anything beyond a continuing recovery in housing, no matter what else is actually happening. They believe that good housing news is always in the best interest of their membership, in spite of the fact that the NAR’s missteps before and during the housing crisis have done significant damage to the credibility of their members and the real estate profession in general.

Down on the trading floor at the NYSE, home builder stocks improve significantly when news of an imminent housing recovery makes the major media outlets. Good news on home sales virtually always results in a stock price bounce for home builders and other public companies that benefit from an improved housing market.

Wall street has now moved from creating mortgage backed securities, CDO’s, derivatives and other financial instruments that nearly brought down the entire economy, to also buying up billions of dollars worth of foreclosed homes. What was once a business that belonged to “mom and pop” investors, small businesses and entrepreneurs has become the latest “trick or treat” project for big investment companies.

Using funding from the likes of Citibank and other housing savvy players, with access to billions of dollars, Wall Street is out to buy up as many of these properties as possible, so that the income stream from rents can be securitized into a new form of housing investment. This is the ultimate “treat” for the entities that have already “tricked” the housing market. They certainly have a vested interest in the good news of a housing recovery. A public perception that housing prices are going up will play right into their investment strategy, in allowing them to buy at 20 cents on the dollar while they sell at 80 cents or higher.

Ultimately, the folks who have the power to influence the news about a housing recovery, are also the ones most likely to profit from that good news.