CNNMoney: 3 Reasons Why Housing Rebound May Falter

Wednesday, 24 Apr 2013 08:15 AM

By Dan Weil

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Much enthusiasm has arisen over the gains in housing sales and prices over the past year.

But experts give CNNMoney three reasons why the market won’t maintain its strength: the rebound is led by investors, the economy isn’t strong enough to sustain the rebound and government spending cuts will hurt homeowners.

The S&P/Case-Shiller Home Price Index for 20 cities soared 8.1 percent in January from a year earlier, the biggest gain since June 2006. Meanwhile, existing home sales hit a three-year high in February, before falling 0.6 percent in March.

Editor's Note:
 
'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

But let’s go through the three reasons. As for the investor angle, “an investor-driven boom is likely to end badly," Dean Baker, co-director of the Center for Economic and Policy Research, told CNNMoney.

The investors are using the low interest rates and the low home prices for the purchase. But when the rates and prices rise, the investors will likely slow down on their purchases, he said.

As for the economy, “these days, I worry more about the economy hurting housing than housing hurting the economy," Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, told CNNMoney.

And as for government spending cuts, they will make it difficult for homeowners to pay their mortgages, some analysts say.

Yale economist Robert Shiller, co-creator of the index bearing his name, is skeptical of the housing recovery too.

“The upturn last year is irrelevant to long-run forecasting,” he wrote in The New York Times.

“Booms are typically followed by busts, usually in far less than 10 years. In a decade, an entire housing boom, if there is one in inflation-corrected terms, is likely to have been reversed and completely washed away.”

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

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