BUZ LIVINGSTON: It was the best of times; it was the worst of times

Published: Thursday, September 20, 2012 at 03:20 PM.

Emblazoned across the front page, Barron’s proclaimed housing’s return. Locally the number of closings certainly bodes well, too. While real estate prices have shown an uptick, location predominates. Rising prices only matter if it’s your neighborhood. Increasing prices bring scant solace to homeowners who bought during the boom and are among the 13 million Americans underwater on their loans.

Barron’s points out prices in some areas like Orlando and Atlanta will likely lag for years. In the Atlanta metro area, almost half of mortgage holders under age 40 owe more than their homes are worth. A potential drag on housing prices is the “shadow inventory” of roughly three million homes whose owners who are 90 days delinquent or in foreclosure. In a normal market, distressed properties number 2 percent of homes versus the current level of 6 percent.

Mark Zandi, one of my favorite economists, notes a shift in buyer’s psychology. People are less worried about prices going down and “starting to worry about missing the boat.” The dearth of new construction, roughly half of historical needs, provides an additional price support for existing homes. Before the Braves and Nationals could knock out their three-game series a Blue Mountain Road home snared multiple offers.

Equity prices around the world recently took out their pre-Lehman Brothers collapse highs and prices are within striking distance of all-time highs. The news provides scant solace to people without a job. If you have been downsized and can’t afford to fund a 401(k) little benefit accrues. Some had to exhaust savings for living expenses. The stock market boom is not all a Federal Reserve induced sugar high. American companies reaping record profits and in many cases have little incentive to hire new employees.

In the wake of The Great Recession, the investor class recovered much better than the masses. Record profits while middle class wages (median household income of $50,000) struggle to match inflation and unemployment remains high. Home prices rebounding coupled with millions underwater on their loans. It was the best of times; it was the worst of times.

What a great lead, you have to marvel at the beauty. People read Dickens decades later for a reason. Don’t ignore the historical context either.


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