Stimulus Spending was supposed to limit the scale of the "Great Recession" and place the economy on the road to recovery.  But economic damage since implementation has been worse than The President argued it would be without stimulus, and a sustainable rebound has yet to coalesce.

The homebuyers Tax Credit contained within the Stimulus Bill was designed to resolve the housing crisis by generating subsidized demand and absorbing excess supply.

Sixteen months later Stimulus has created the worst housing market on record.  Pending home sales, a forward-looking indicator, are more dire today than before the Bill was enacted.  The fewest housing transactions since the Bust began, combined with record and rising foreclosures and perniciously high unemployment, ensure that housing prices will fall sharply once the subsidy's distortive impact fades. 

Expect sharp housing price declines the second half of 2010.  





It Would Be Funny If It Wasn't So Sad

The National Association of Realtors is a marketing organization which promotes home buying to support its member real estate brokers.  NAR does generate useful data, but its promoters manipulate the figures to portray the housing market as a perpetual buying opportunity.

While extracting the data for the above chart, I noticed an interesting, asymmetrical feature of NAR press releases.  When the Pending Home Sales Index is rising, NAR likes to observe how long it has been since the value previously reached such impressive heights.

For example, a press release excerpt from September 2009:

"Contract activity for pending home sales has risen for six straight months, a pattern not seen in the history of the index since it began in 2001"

"The index is at the highest level since June 2007 when it was 100.7"


Whereas when the index is falling in value and the data is negative no such references are made.
Excerpt from today's press release:

"Pending home sales edged down with near-term sales expected to be notably lower in contrast to the spring surge when buyers rushed to take advantage of the home buyer tax credit, according to the National Association of Realtors.

The Pending Home Sales Index, a forward-looking indicator, declined 2.6 percent to 75.7 based on contracts signed in June from an upwardly revised level of 77.7 in May, and is 18.6 percent below June 2009 when it was 93.0."


No context is provided by which to understand the 75.7 index value.  The observation that home sales "edged down" expectedly sounds almost cheery.

In reality, 75.7 represents the worst figure since NAR created the index in January 2001.  June's figure "edged down" from the second lowest value in history.  The previous record low was 80.5 in January 2009.  This happens to be the month preceding both the Stimulus Spending Bill and the origination of the Obama Mini-Housing Bubble. 

Stimulus has come full-circle with respect to housing.  The 16 month distortion has run its course and we are now actually worse off than we were before the Bill was enacted. 

During the next 6 months the stock market will correct, unemployment may rise, housing prices will fall, shadow inventories of foreclosures will swamp the market and The Stimulus Spending Bill will come to be viewed as a cataclysmic failure by the intellectually honest.

Those in the other camp will be calling for a 7th round of stimulus and complain bitterly that had we only spent another trillion dollars or two everything would be alright. 

Regardless of these dismal events yet to transpire, I fully expect NAR to maintain its sunny disposition.