Bargain-hunting is the balm of recovery even today, dead set against low prices the Federal Reserve might be. Detroit is a living laboratory in many things, including the so-called real balance effect. As Marshall Mandall, a RE/MAX agent in that city, tells the story, house prices are still falling at the high end of the market, though they have stabilized at the low end. Transaction volumes are rising. Speculators are on the prowl, but so, too, are ordinary home buyers. It seems—who’d have guessed it?—that value sells. “They can buy something for half of what they could three years ago,” Mr. Mandall says. “Everybody perceives bargains in their house-hunting.” At the end of the second quarter, according to the Detroit Free Press, the supply of unsold houses was equivalent to 8.5 months’ sales, down 39% from the year before.
Through the first six months of 2009, the Case-Shiller 10-City Composite index of house prices fell by 5.5% compared to year-end 2008. However, the rate of decline has been slowing and, indeed, the index recorded month-to-month appreciation in May and June. It may just be that the Fed’s assumption of a 14% decline in prices this year (built into the base case of its bank stress test) is unrealistically bearish.
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Think about that. The housing market is HOT in Detroit, and I’ve read/heard about the strength of investment activity in the Detroit housing market for at least a year. Detroit. The city that is on its knees because of the failing auto industry (not fooled by Cash for Clunkers, either).
IMHO, this is not bullish. Instead, it signals some severe distortions in the market.
This is what so many of us have been complaining about. They are going to destroy the currency in order to “save” the housing/mortgage market. I’m not convinced this is a good thing.
