The recession began with the housing crisis, so it’s only fitting that the recession concludes with housing recovery. Many economists have already proclaimed the recession to be over, but those bold enough to forecast such an event may be premature considering the Federal Reserve has just recently concluded its mortgage-backed security purchase program. In addition, the $8,000 first-time home buyer tax credit and the $6,500 move-up home buyer tax credit are about to expire in exactly two weeks.
The Federal Reserve’s commitment to purchase $1.25 trillion in mortgage-backed securities came to end in March. The program was designed to keep mortgage rates artificially low for as long as the program was in effect. However, now that the program has concluded, mortgage rates have already started to inch higher. If mortgage rates continue to elevate, as expected, there is no longer an incentive for homeowners to refinance. As for prospective home buyers, the allure of the federal tax credits will have vanished just as quickly as mortgage rates are anticipated to rise.
So if the recession began as a result of the housing bubble bursting, is it really safe to say the recession over if the housing market hasn’t fully recovered? As home prices continue to fall, the only hope for a sustained housing recovery is if prospective buyers delve into the realm of homeownership due to the incredibly low prices on homes and the abundance of available properties due to the large number of foreclosures. According to data released by the S&P/Case-Shiller Home Price Indices, home values declined nearly every month between April 2006 and May 2009. The S&P/Case-Shiller Home Price Indices is arguably the leading measure of home prices in the United States.
Another vital indicator is the Housing Market Index (HMI), provided by the National Association of Home Builders. The HMI gauges the number of prospective homeowners who are in the beginning stages of the home buying process. Recent figures from the HMI indicate negativity as home prices seem to be falling rather steadily yet again.
Despite so many economists accepting the belief that the recession has ended, the truth rests in the data. Numbers don’t lie, so it really makes you stop and wonder what the basis is for so many economic forecasters to be thinking so positively about the economy as a whole today. Prepare for the worst and hope for the best.
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