John Mauldin's Outside the Box - Still Home Sick

Still Home Sick

(Excerpted from the May 2011 edition of A. Gary Shilling’s INSIGHT)

All may be well. That’s what many housing optimists proclaimed a year ago when prices appeared to have stabilized, indeed, started to recover from their collapse (Chart 1). As Insight readers are well aware, we emphatically disagreed. We pointed out that the earlier extremes in the housing market made rapid revival—or any revival for that matter—extremely difficult. In the earlier salad days, housing was propelled by low mortgage rates, lax or nonexistent underwriting standards, securitization of mortgages that passed seemingly creditworthy and highly-rated but really toxic assets on the unsuspecting buyers, laissez-faire regulation, and most of all, almost universal conviction that house prices never fall on a nationwide basis—which they hadn’t since the 1930s.

But housing activity remains at post- World War II lows (Chart 2).

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