Don’t Fight the Fed — Housing Edition
“I am still aware of the inorganic nature of the improvement [in housing], but the key takeaway is a) US housing market down 35% eventually stabilizes; 2) do not under-estimate the ability of a determined Central Bank to impact any specific market it chooses.”
–Barry Ritholtz, “Mea Culpas for 2012“; “The Big Picture” (1/18/2013)
So, it turns out the uber-bears were wrong on housing in 2012.
Blogger Barry Ritholtz.
Devoted readers of this blog will recall that Mr. Ritholtz and I tangled (politely) over housing’s outlook — on these very pages — last Spring.
Burst Bubbles & Fed Intervention
Ritholtz’s take, in a nutshell: burst bubbles don’t just revert to the mean, they overshoot on the low side; and banks’ overhang of foreclosures (“shadow inventory”) will swell supply and torpedo prices even further.
My rebuttal: housing “Chicken Littles” had been perennially warning of shadow inventory — and been perennially wrong.
In fact, as I write this in early 2013, it appears the foreclosure wave crested nationally a full year ago.
Meanwhile, post-bubble stocks never overshot on the low side, thanks to the rather energetic efforts of Fed Chairman Ben Bernanke.
So why should houses?
“Might Mr. Bernanke et al have taken any steps to “artificially prop up” housing the last few years? (ZIRP, tsunami-like levels of excess liquidity, currency debasement and its concomitant, elevated inflation, all come to mind).
Steps — I’d hasten to add — which are historically unprecedented, and that play out unpredictably and with notorious time lags.
And if so, why wouldn’t that result in a different outcome for housing prices, just like it has with stocks?”
–Ross Kaplan, “Barry Ritholtz Channels Vince Lombardi“; City Lakes Real Estate Blog (4/11/2012)
“But, But . . . “
Call it “inorganic,” “artificial,” “orchestrated,” whatever — the fact is, U.S. housing bottomed in 2011, and is now solidly rising in most U.S. markets.
When you’re wrong, you’re wrong — and for precisely the reason(s) I cited.