Here's Why Housing Will Now Double Dip

Double Dip Icecream

The Economist’s Free Exchange blog sees signs of an upcoming double dip for U.S. housing, coming right as government incentives expire.

This down leg won’t be as bad as the last, but it means an up-cycle in housing prices remains well beyond the horizon:

Free Exchange:

Construction and builder confidence have weakened once again. The latest data on existing home sales show a spike in activity and the best April performance since 2006. But this was almost certainly due to the looming end of the federal tax credit. Sales also rose and spiked before and immediately after the previous deadline, last fall, only to decline again through the winter. More worrying still, the previous spike in sales coincided with a decline in housing inventory. This time, inventories have risen dramatically. Even as the end of government incentive programmes lead buyers to exit the market, the number of homes for sale will have grown significantly.

It is unlikely (though not impossible) that prices will plummet once more; price declines are likely to be small relative to those experienced in 2008 and 2009. But small declines are enough to do damage. Four years after the housing boom reached its apex and the bust began, and end to the mess remains just out of reach.

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