UPDATED: Classic "Text Book Recovery" Of US Housing

While reading the latest "bear warning" on "gigantic error of pessimism" from ECRI, one should have noted that US Weekly Leading Index "was pushed up by strong housing activity".

It just happens that Calculated Risk has compiled some facts and opinions on the policy of supporting house prices. It is definitely worth reading the original post in full. I excerpt here some key messages:

As Representative Frank notes, the policy of the U.S. appears to be to support asset prices at almost any cost. This includes:

- The FHA insuring "bad loans" for buyers with a high probability of default.
- The first-time home buyer tax credit (the FTHB makes no sense from any other economic perspective).
- Delaying foreclosures, first with moratoriums and then with "trial modifications".

We could probably include the Fed buying GSE MBS to lower mortgage rates, and other policies like increasing the "conforming loan" limit to $729,750 in high cost states.

Intentionally encouraging loans with high default rates (insured at taxpayer expense), and the FTHB tax credit (especially allowing buyers to use the credit as a down payment) have stimulated demand. And delaying foreclosures has restricted supply.

Well, there are some other games in play too. First of all, I really appreciate the "earnings recovery" story at banks, some of "organic drivers" are listed by Calculated Risk. However, at the end there comes the sustainability of feeding the corporate profits with taxpayer money, but I will focus on that during next week ...

With this kind of government capitalism I just thought to ask why markets dislike investing in Venezuela?

Obviously, the central belief is that government can control everything, until someone probably recognizes that it cannot (e.g., velocity of money, or on the other side of spectrum - reflation running like the process of unintended panic of currency debasement; just random thoughts)? Or even further out, the current state will be flushed down the closet in the name of corporate profits?

UPDATE: It is worth reading also "A Bounce? Indeed. A Boom? Not Yet" by Robert Shiller at The New York Times. The conclusion at the end is:

WHAT should we conclude? Given the abnormality of the economic environment, the sudden turn in the housing market probably reflects a new home-buyer emphasis on market timing. For years, people have been bulls for the long term. The change has been in their short-term thinking. The latest answers suggest that people think the price slide is over, so there is no longer such a good reason to wait to buy. And so they cause an upward blip in prices.

At the moment, it appears that the extreme ups and downs of the housing market have turned many Americans into housing speculators. Many people are still playing a leverage game, watching various economic indicators as well as the state of federal bailout programs — including the $8,000 first-time home-buyer tax credit that is currently scheduled to expire before Dec. 1 — in an effort to time their home-buying decisions. The sudden turn could signal a new housing boom, but is more likely just a sign of a period of higher short-run price volatility.