The pending home sales report came out and rose 1% in December.  That was above the expectations of the experts who expected the number to be flat.  Good news on the surface, as the government went on to report that the median price of an existing home was about $173,000 in 2009 and they projected that would rise to $179,000 in 2010 and $187,000 in 2011.  Good news, right?  Wrong.

This is a classic example of the damage being done to free markets by government intervention. Look, price should be determined by supply and demand for any product or service in a free economy.  However, along the way the government got the idea that everyone should own a home as some sort of right, so they began by guaranteeing loans for people who traditionally would not have qualified for a mortgage - either because they had poor credit, had no down payment, or both.  This was how the housing bubble blew up in the first place - when reality caught up with this nonsense and the whole thing detonated.  That was bad enough.

Now instead of allowing the bubble to deflate and free market forces to correct themselves, the government has pumped more money into the system to reinflate the bursting bubble.  I say bursting because the government  did not allow it to completely deflate.  Today, there is an existing inventory - estimated at a 2 year supply - of empty houses just waiting for buyers and more are being built under the expectation that things will get better and sales will take off as they have in the past.

Okay, putting aside that this expectation is based upon continued government intervention that
will end sooner or later because they have run out of money. Let’s also putt aside that reality
will again catch up when poorly qualified buyers, who will once again fall for the same joke, have an inability to maintain their mortgages, this is a classic example of confusing price for
wealth.

Millions of people out there are waiting for the “wealth” to rematerialize in the form of rising
home prices – when the cold, hard truth is there are no market forces driving that.  So what happens?  The government prints money causing price inflation and this is mistaken for wealth.  Folks, wealth is real and it is based upon hard economics - and price is easily manipulated.  Home prices are perhaps going up but real values are still falling in real dollars.  This is just inflation rearing its ugly head and conveniently not being recorded as such, by the bureaucrats who keep statistics.

Don't fall for it or make plans based upon a rising home price.  To do so would be risking falling for the same joke twice....... and only a fool does that.