Housing Recovery Built on Sand

Barron's reports:

prospective buyers have an array of houses available to them in most regions at knock-down prices. But there's no reason for them to hurry while apartment rents are tumbling. Builders, meanwhile, would be loath to build new houses on spec, even if their banker would provide the financing.

All of which points to an extended period of depressed housing activity after the excess supply from the boom built on absurdly easy credit is worked off. This is an example of what economists of the Austrian school call "malinvestments," which are the inevitable result of a credit inflation. The boom results in an inevitable bust, during which past excesses have to be corrected, however painfully.

Anyone interested in the housing market should read this one.