Housing Bulls Living in ‘Fantasyland,’ Economist Says

“For instance, the same Case-Shiller index saw increases from May 2009 to May 2010, only to resume its previous free fall with a vengeance,” he argues. “This period too was hailed as the bottoming out of the housing market. But the optimists failed to account for the effects of the First-Time Homebuyers Tax Credit that gave up to $8,000 to households as incentive to buy a home, pulling demand from the future into the present. Once that credit expired in mid-2010, prices began to fall again past the previous low.”

This time around, Randazzo writes, the cause of the uptick is that there were fewer foreclosures being processed over the past year which, thanks in part to the robo-signing scandal, has effectively taken existing housing supply off the market. But millions of these delinquent properties will be going through foreclosure and be coming on the market at some point, reversing the price trend currently enjoyed.

“Optimists counter that distressed home sales where homeowners want quick access to cash have slowed considerably, indicating that the foreclosure inventory is not that deep,” he concludes, before adding “We are currently in a drifting cycle where pressures to prop up housing have the market only slowly trending downward with occasional upward price swells like we are experiencing now, only to trend back down again.”