Why The Housing Market Has To Bottom Out

Massey Knakal chairman Bob Knakal, in his latest commentary, tackles the almost Zen question of why the housing market has to bottom out before the overall economy can get stronger:

Much of the consumer spending that has occurred over the last few years has been stimulated by the massive amounts of mortgage equity withdrawal taken by homeowners who have, essentially, used their homes as ATM machines. Additionally, the wealth effect of feeling as if they had massive equity in their homes created spending habits which fueled the economy. As these dynamics no longer exist, it is important for the housing market to bottom out in order for our economy to turn around. This is also vitally important because the value of mortgage backed securities and derivative products based on these securities cannot be accurately valued unless there is a high level of confi dence in the value of our housing stock.

More commentary here.