Double Dip in Housing? Depends on What You Mean by Double Dip

Stock broker concerned over possibility of a double-dip recessionWhen the International Monetary Fund warned of a potential double dip in the housing market last week, it raised the question yet again of what would constitute a double dip, and how will it affect homeowners?

The IMF pointed to the fact that, while signs of recovery are stronger than expected, the backlog in foreclosures and the number of mortgage holders that are still underwater, as well as still-high unemployment, "pose risks of a double dip in housing."

Indeed, with even the rich choosing strategic default over mortgages on McMansions, and celebrities selling at a discount, it would seem that the housing market is still struggling to gain momentum. While the tax credit moved some inventory in the months prior to its expiration at the end of April, sales came to a screeching halt, and even though mortgage rates are at historical lows, tougher lending rules and gun-shy buyers are pushing a big "pause" button on house sales.

But does this mean a double dip in the housing market is in our future?
"It's always risky to predict a double dip," said Yale economist Robert Shiller, one-half of the duo that generates the monthly S&P Case-Shiller Index housing report. He told The Wall Street Journal late last month that while a double dip in housing is rare, "this is one time we have to consider the possibility.... The basic trends that created this decline may reassert themselves."

Those trends include a high jobless rate that doesn't seem to be going away anytime soon.

But there are those that say signs are pointing up, rather than down, and that the case for a double dip -- in both the economy and in housing -- is overstated.

MarketWatch's Dave Kansas asserted this week that the doomsayers are wrong, and there are signs that the market is, however slowly, on its way up.

A drop in jobless claims, a better-than-expected June for retailers and a stock market that has rebounded yet again show that, in fits and starts, the market is trending upward.

Harder to define is what exactly is a double dip in housing? It depends on whether you call this spring's buying spree an uptick or an anomaly. TheWall Street Journal says that a 5 percent decline in housing prices over the next year isn't exactly a double dip.

A bigger question for potential homebuyers remains: Do you buy now, or wait for prices to go lower? Will mortgage rates go down even more?

That depends, said Shiller. "The reason mortgage rates have continued to fall is because there is not a great demand for them," he said. If demand continues to remain low then, yes, possibly, they could go down further.

With the number of foreclosed homes and new homes standing ready for buyers, and a stagnant unemployment rate, that's a good bet.

And that's what it all comes down to, say many experts. More jobs will loosen the purse strings and boost the confidence of those who are ready to buy.

Perhaps the best indicator for potential homebuyers is to keep an eye on what happens in the small-business sector. Federal Reserve Chairman Ben Bernake deems improvement in this area crucial for pushing the economy ahead.

At a conference earlier this week, Bernake told policymakers: "To support the recovery, we need to find ways to ensure that credit-worthy borrowers have access to needed loans," reported ABC

Economists and lawmakers are debating the wisdom of easing loan restrictions to small businesses, which traditionally is responsible for job creation. While some are taking a wait-and-see attitude, others are pushing for the government to create a fund that would encourage banks to boost lending to small business owners.

If small businesses get a boost, home prices might follow. If the government hesitates, there might be sightings of that rare bird -- a double dip in the housing market.

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