If we want home prices to bottom, well then we must let them fall.

The few bright spots appear to be a result of government stimulus, the homebuyer tax credits in particular. However, rather than jump-starting the market, the government’s interventions seem to have only had a temporary effect that evaporated as the stimulus expired.

Housing supply vastly outstripped demand in 2010, especially when one considers the shadow inventory of homes with mortgages in default or foreclosure. This state of affairs continues into 2011. As a result, RPX metrics continue to show weakness.

I hope there are members of the FOMC who will vote “hell no” at the next Fed meeting. Further, if we leave rates too low for too long, what will the Fed do when this business cycle comes to its end, as they always do? We need to put some bullets back into the Fed arsenal. It is time to start thinking about raising rates.

Nonetheless, when China’s imbalances matters is a subject of speculation. That the imbalances will be addressed by China voluntarily, or the markets forcibly, is not. China bulls have not factored this setup into their models.

“My best guess is that we’ll have a continued recovery, but it won’t feel terrific. Even though technically we’ll be in recovery and the economy will be growing, unemployment will still be high for a while and that means that a lot of people will be under financial stress.”