The Truth About ‘Hitting Bottom’ of the Housing Market

This isn’t meant as an endorsement of Mitt Romney (he’s a Republican candidate for president, for those of you who aren’t paying much attention), but he hit the nail on the head in a statement he made about foreclosures in last week’s Republican candidates debate. He subsequently took some heat for it, but that’s the way politics go.

What Romney said, in response to a question about home foreclosures, was that “the right course is to let markets work;” that is, don’t keep trying to stand in the way of foreclosures, since that’s the way the housing market will clear itself. His contention is that the foreclosure process should “run its course and hit the bottom.”

The problem is with a political candidate saying this is that as true as it may be, it sounds harsh. And he said it in Nevada, a state with one of the worst housing markets in the country.

His political opponents jumped on the statement, knocking him as someone who would favor banks over homeowners who are hurting.

Leaving the politics aside, his point is a valid one. We’re now into the fourth year of the housing bust, and I’ve made an observation similar to Romney’s in a number of previous posts. Unfortunately, until we clear things out, the housing market is not going to begin to improve. I think we’re gradually getting closer to the bottom, but that is always a tough thing to predict.

Romney was arguing against government efforts that – while intended to soften the fall – are likely to just keep prolonging the pain. Sometimes the best approach is tough love. It’s a natural and commendable inclination to want to help when people are going through tough times, but it doesn’t always help in the long run.

It’s not a pretty analogy, but it’s like a substance abuser. If his family makes excuses for him and “enables” him, he’s not going to quit and leave that life behind. But when he’s sleeping in the gutter, and his family and friends have all turned their backs on him, he hits bottom. Either he dies on the street or he quits using and turns his life around.

In a post back in May, titled “Nowhere Near Bottom,” I referenced an analysis that predicted the housing market bottom would be coming sometime in 2012. That still seems about right, but don’t ask me to pick a month or a day. As long as we can avoid tinkering too much with the market, once we reach that point things should finally begin to improve.

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