• by Thom Forbes  @tforbes, June 1, 2011

The announcement yesterday that the housing market had taken a rare second dip seems to have created a classic "Is the well half empty or half full?" situation. We use "well" instead of "glass" because of the industry's huge impact on everything else -- from grass seed to appliances to municipal revenues.

The New York Times headline on David Streitfeld's story reads: "Bottom May Be Near for Slide in Housing." The FoxBusiness headline on Dunstan Prial's story reads: "The Depressing State of Housing." The reality is that both may be right: the water level may be reaching an equilibrium.

"Few analysts expect housing prices to rebound anytime soon," Streitfeld writes. "But quite a few are predicting that the market is close to the moment when things will stop getting worse, which will be a major improvement all by itself."

"By far the bulk of the downturn of housing prices is beyond us," Paul Dales of Capital Economics tells him. "There are some amazingly favorable signs. Housing is the most undervalued it's been in 35 years."

But in the short term, Dales expects the market to recede an additional 5%.

A Bloomberg editorial points out that home ownership in the U.S., as well as in Western Europe, has traditionally hovered around 65%. Around 1995, it started to explode on these shores (as well as in the European countries with the worst economic problems: Spain, Ireland and Greece).

"The belief took hold that rising home ownership meant a better society, no matter how fragile new buyers' finances might be," the editorial states. "Down payments started to matter much less; the same was true of income, which came to be ignored through no-documentation 'liars' loans.'"

The net result was that 69.2% of American households owned their homes by late 2004. We're now back to 66.4% -- close to what Bloomberg refers to as "The Golden Mean."

In a video interview, Robert Shiller, the Yale economics professor who is the co-creator of the S&P/Case-Shiller Index, tells Bloomberg Television's "Street Smart" hosts Carol Massar and Matt Miller that values were terribly distorted and we need to get past the assumption that real estate is a "money machine available to anyone." In fact, he says, people are losing their enthusiasm for the market and that's why prices are falling.

Massar and Miller want to know, of course, if we've hit "rock bottom." Shiller expects more dips but he's "not panicking," he says. He points out that the construction industry is dead right now and that should help to stabilize matters.

On top of the dismaying housing news, The Conference Board's confidence index dropped to 60.8 from a revised 66 reading in April -- its lowest level in six months. Blame was assigned to the lackluster job market as well as declining home values.

Media Daily News's Eric Sass reports that the latest bad news is unlikely to send advertising into the kind of nosedive that gripped the industry in 2008-09. Several experts weigh in, as does history: "Even when there were "double-dip" recessions (1973-74 and 1980-82), ad spending held steady or even increased during the second dip, which tended to be smaller and therefore less disruptive than the first dip," Sass concludes.

Kenneth Rapoza has a simple and inviting solution for would-be home buyers in his "Bric Breaker" blog on Forbes.com: "You know that $400,000 house you want to buy; offer them $350,000. If they don't take it now, they will soon enough."

One problem: Unless you're flush with cash, you'll have to also do a helluva sales job on the mortgage folks, and they tend not to blink. Rates fell to their lowest level of the year last week but many people still find themselves locked out of the market.

"The Federal Housing Authority is the only option left for many of these potential buyers, but the qualification process for government-sponsored loans is difficult as well, according to mortgage experts, and the paperwork is onerous," FoxBusiness' Prial reports.

But as the Bloomberg editorial points out, sound lending practices are essential to long-term recovery. "Trying to revive the anything-goes attitude of bubble-era lending in an effort to funnel more than 65% of Americans into home ownership can only lead back to instability," it concludes.

I'd like to write that you can bank on that, but what, exactly, does that mean anymore? As a front page story in the Times asks this morning, how can it be that one mid-level 28-year-old Frenchman at Goldman Sachs has "achieved the dubious distinction of becoming the only individual at Goldman and across Wall Street sued by the Securities and Exchange Commission for helping to sell a mortgage-securities investment in one of the hundreds of mortgage deals created during the bubble years"?