Bernanke Sees Economic Improvement

Ben Bernanke gave his testimony to Congress and stated that he sees economic recovery by the end of the year.  The reason he sees a recovery from the recession is the stabilization of the United States housing market.  We will not know when a bottom has been put in home prices until the bottom has already come and gone.  It is quite possible that the bottom occurred in the month of March.

The issue with the bottom in home prices occurring in March is the fact that the unemployment rate continues to rise.  One thing that Americans need to stay in their homes and possibly buy new homes is jobs.  If the number of jobs is decreasing each and every day then how can we see a shrinkage in housing inventory?  Obviously the government can buy up some of the inventory but will this really help home prices?

The only way that home prices will bottom is if we see supply equal demand and that is definitely not happening in most markets.  In fact, there are many markets that are seeing historical highs in new homes supply.  New home construction has greatly decreased over the last year, but there are still home that were built during this period that are going unsold.  This does not even begin to address all the homes that are getting foreclosed. 

Overall, it is good that the Fed Chairman sees a stabilization in the housing market, but is this reality?  There are many factors that make us think otherwise.