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L-shaped housing market?

July 16, 2009

Economists seem willing to celebrate even the most tepid economic release these days. The National Association of Homebuilders’ Housing Market Index nudged up slightly to 17 in July, up from 15. Most economists had expected 16, so this is what passes for good news.

But the improvement is tepid indeed considering the record lows the index has hit. Even most dead cats bounce more vigorously than this.

The report pointed to an improvement in the low end of the market. Joshua Shapiro at MFR believes that this segment of the market at least may be nearing a bottom. He is less sanguine about the fortunes of middle and higher priced houses.

Many economists are assuming that a stabilization in the housing market is the inevitable first step towards a recovery. I would suggest gloomier possibility. The recent period of calm could simply be a pause for breath on the way down. The fact that this decline will probably be quite slow is cold comfort.

There is still an imposing inventory of unsold homes. Unemployment continues to rise. The interest rate of the 30-year mortgage is still well above its low point. As a suffering homeowner myself, it pains me to say that an L-shaped housing market may be the best we can hope for over the next few years.

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