With Too Many Houses For Sale Will We Ever Get Out of the Recession?

We asked the question, "With Tightened Credit Will We Ever Get Out of the Recession?" Now we expand on that. There are still to many houses for sale.

Things are picking up in the housing market. My own neighborhood is on fire. Homes are going up left and right. For the past year my neighborhood was half full. Now it's almost over flowing.

Home price have been rising in recent months. Finally! After such a long plunge the National Association of Realtors and the S&P Case-Shiller national index report that prices have risen and Zillow.com says fewer Americans owe more than their property is worth.

According to the Census Department about one in every seven homes was vacant in the third quarter.

So what's going to happen? Are we ever going to get out of this hole with no credit and a too big of a surplus of homes?

I read an article on The Motley Fool yesterday about, "Predications From the Man Who Called the Housing Meltdown." I thought it was strange that I didn't remember doing an interview with The Motley Fool(nice to know I wasn't the only one who knew there was going to be a meltdown).

According to Robert Shiller, We've had a huge recovery in the housing market." Shiller also stated, "It's going up so solidly at the moment. But on the other hand it all looks risky, too. So I think we could see new lows in home prices."

So it looks like it's to soon to start getting excited about the increase. Shillr feels homes may stay around where they have been in the last few months and that they may go up for a while, then come down and stay level. Shiller also though prices would stay stagnant for the next five years.

Here is what Shiller has to say about a stagnant housing market:

"Well, or UMM market tells us the point in five years. It doesn't tell us what will happen on the way. Right now, home prices are rising pretty fast. So, taking that fact into account, a plausible scenario would be tat prices rise for some more months and drop back, but not a huge drop back, so that they end up about where they are (now) in five years.

That seems plausible to me. given historical experience that we went through the biggest bubble in home price history. Historically, home prices have not shown so much volatility and have not shown such a correlation with business cycle. So, looking at that, I suspect home prices won't do a lot over the next five years.

On the other hand, if you look at the housing market, the fact that we went through this enormous bubble suggests that people have gotten more speculative about housing. It didn't used to be considered a speculative market. It was home. It used to be widely believed that home prices were widely driven by construction costs, and those have been stable through time.

We've gotten to think of them as speculative, and that means we may make them behave speculatively. So I think that volatility of home prices may be higher than (it was) in the past. That's why I hink it's still worrisome that home prices could fall and set new lows. That is not my preferred scenario, but I could certainly see that happening.

I figured it was going to be a lot longer than five years like Robert Shiller is predicting, but I guess time will tell.

What do you think? Are things improving? Is the housing market finally making a re-bound?