Why Does The Housing Market Still Suck?

[The Rabbi]

Ya just can't get it out of your head that some people don't merit owning their home, can you?

I'm fully aware that the home ownership rates got far too high relative to housing prices and incomes.

That doesn't mean that the solution to the problem is to drive home prices and interest rates low enough to make homes affordable to those people again.

That was a complete non-sequitur. Home ownership (and prices) got high because of historically low rates but mainly because of loosening credit criteria. If you lower rates but maintain criteria you will have more credit worthy borrowers buying less expensive homes they can more easily afford.
That's a losing idea, how exactly?

 

[The Rabbi]

well the bank "eats" the difference between whatever terms they receive and the next best alternative: foreclosing through a lengthy and expensive process in order to take possession of an asset that is losing value, and that will lose even more value through the process of foreclosure.

FNMA is paying some banks, Onewest, to wit, to foreclose, and giving them every nickel they lose.

There is a growing investor market for foreclosed homes.

Well that's a bit different - that's a direct subsidy on banks that foreclose, making foreclosure a more palatable and less expensive solution.

Barring that subsidy, there would be fewer foreclosures.

There is no "subsidy" for foreclosure, other than the limited program he mentioned. Rather the opposite: Banks are being pressured not to foreclose for political reasons. Did you not read the OP?
Banks have an incentive to foreclose to get bad loans off their books.

 

[8537]

Ya just can't get it out of your head that some people don't merit owning their home, can you?

I'm fully aware that the home ownership rates got far too high relative to housing prices and incomes.

That doesn't mean that the solution to the problem is to drive home prices and interest rates low enough to make homes affordable to those people again.

Drive? Markets take care of themselves.

Markets do indeed take care of themselves.

They don't, however, always take care of themselves in a manner acceptable to the people who live in those markets.

 

[8537]

That's funny. GT claims houses are undervalued. You claim tehy are over valued. Or something. So your solution is to prop up values artificially so that....? .

That's because the sale price of homes right now is still high, historically speaking; while the stream of income needed to finance a home right now is very low

 

[Revere]

That's funny. GT claims houses are undervalued. You claim tehy are over valued. Or something. So your solution is to prop up values artificially so that....? .

That's because the sale price of homes right now is still high, historically speaking; while the stream of income needed to finance a home right now is very low

So there nothing "forced" about the market causing those housing price to go lower.

 

[8537]

Ya just can't get it out of your head that some people don't merit owning their home, can you?

I'm fully aware that the home ownership rates got far too high relative to housing prices and incomes.

That doesn't mean that the solution to the problem is to drive home prices and interest rates low enough to make homes affordable to those people again.

That was a complete non-sequitur. Home ownership (and prices) got high because of historically low rates but mainly because of loosening credit criteria. If you lower rates but maintain criteria you will have more credit worthy borrowers buying less expensive homes they can more easily afford.
That's a losing idea, how exactly?

Oh, we might be closer to agreeing there - I certainly support perpetually low rates to the extent possible without causing inflation.

The only problem is that "low rates" can't be so targeted and while they may not cause a bubble in housing, they are likely to cause one somewhere else. In the late 1990's, it was in equities for example.

 

[Revere]

I'm fully aware that the home ownership rates got far too high relative to housing prices and incomes.

That doesn't mean that the solution to the problem is to drive home prices and interest rates low enough to make homes affordable to those people again.

Drive? Markets take care of themselves.

Markets do indeed take care of themselves.

They don't, however, always take care of themselves in a manner acceptable to the people who live in those markets.

You mean markets don't work because they don't give you the gifts you want?

 

[8537]

FNMA is paying some banks, Onewest, to wit, to foreclose, and giving them every nickel they lose.

There is a growing investor market for foreclosed homes.

Well that's a bit different - that's a direct subsidy on banks that foreclose, making foreclosure a more palatable and less expensive solution.

Barring that subsidy, there would be fewer foreclosures.

There is no "subsidy" for foreclosure, other than the limited program he mentioned.

indeed. So there's a subsidy for foreclosing. Which means you get more foreclosures. Thanks for clearing that up.

 

[8537]

That's funny. GT claims houses are undervalued. You claim tehy are over valued. Or something. So your solution is to prop up values artificially so that....? .

That's because the sale price of homes right now is still high, historically speaking; while the stream of income needed to finance a home right now is very low

So there nothing "forced" about the market causing those housing price to go lower.

There certainly IS something forcing the value of each house to go lower.

 

[Revere]

That's because the sale price of homes right now is still high, historically speaking; while the stream of income needed to finance a home right now is very low

So there nothing "forced" about the market causing those housing price to go lower.

There certainly IS something forcing the value of each house to go lower.

Yeah, a market dislocation, which can only be solved my a market correction. Not people like you pretending people can afford homes they really can't.

 

[editec]

NOBODY wants the market to correct.

Except our children who will want to buy a house one day.

I'm with Rabbi on this one.

The market cannot be ignored. It can be distorted by law or policy, but it will inevitably correct the moment those distorting forces are removed.

The real bitch about this is that for most American families, their only real investment is in their homes.

And when that market truly corrects to something sane?

The American middle class is going to experience a real loss in perceived net worth. (I say perceived because until people sell their houses their net worth is entirely theoretical)

And that cannot be good for this economy, either.

 

[Toro]

Too many houses. Too much supply. Simple as that.

Supply/demand won't be back into balance for at least another two years, maybe longer.

In Europe, some are seriously recommending destroying real capital (homes) in order to reduce supply and improve the lot of financial capital.

Only an economist who works in a cave could come up with such a plan with a straight face.

The government is creating - again - massive distortions in the economy by not allowing prices to clear. One of the reasons why Japan has been in such an awful funk is because they kept all these zombie banks around, allowing them to pretend that the bad loans really didn't exist. That is what we are doing here. The longer we keep dedicating capital towards investments that have a low return, which is what we are doing by not clearing out the deadwood, the longer this malaise will continue.

 

[8537]

That's funny. GT claims houses are undervalued. You claim tehy are over valued. Or something. So your solution is to prop up values artificially so that....? .

That's because the sale price of homes right now is still high, historically speaking; while the stream of income needed to finance a home right now is very low

So there nothing "forced" about the market causing those housing price to go lower.

Of course there is. When the value of my home is driven lower because of the forced eviction of my neighbor, the price of my home is being forced to go lower.

 

[The Rabbi]

Well that's a bit different - that's a direct subsidy on banks that foreclose, making foreclosure a more palatable and less expensive solution.

Barring that subsidy, there would be fewer foreclosures.

There is no "subsidy" for foreclosure, other than the limited program he mentioned.

indeed. So there's a subsidy for foreclosing. Which means you get more foreclosures. Thanks for clearing that up.

You were wrong. That much is clear.

 

[8537]

Drive? Markets take care of themselves.

Markets do indeed take care of themselves.

They don't, however, always take care of themselves in a manner acceptable to the people who live in those markets.

You mean markets don't work because they don't give you the gifts you want?

I have no idea how you could possibly arrive at that conclusion based on my statement.

Therefore, I have no way to address such an absurd idea.

 

[8537]

Too many houses. Too much supply. Simple as that.

Supply/demand won't be back into balance for at least another two years, maybe longer.

In Europe, some are seriously recommending destroying real capital (homes) in order to reduce supply and improve the lot of financial capital.

Only an economist who works in a cave could come up with such a plan with a straight face.

The government is creating - again - massive distortions in the economy by not allowing prices to clear.

As I asked the other poster: If homes are selling for less than cars, is the problem here an issue of the price-clearing equilibrium? Or is it perhaps something else?

 

[The Rabbi]

That's because the sale price of homes right now is still high, historically speaking; while the stream of income needed to finance a home right now is very low

So there nothing "forced" about the market causing those housing price to go lower.

Of course there is. When the value of my home is driven lower because of the forced eviction of my neighbor, the price of my home is being forced to go lower.

That's a tautology.
If your home is not for sale then there is no price on it. If the market dictates that your home is worth less, then it is worth less if you go to sell it. That is the same for every investment under the sun. Why should houses be any different. That's called risk. Asking the gov't to eliminate risk is asking it to eliminate reward as well. Eventually you end up with a command economy. And we know how those work out.

 

[8537]

So there nothing "forced" about the market causing those housing price to go lower.

Of course there is. When the value of my home is driven lower because of the forced eviction of my neighbor, the price of my home is being forced to go lower.

That's a tautology.

No it's not.

If your home is not for sale then there is no price on it.

That doesn't prevent it from going underwater, nor does it reduce my access to the capital I have in that house.

If the market dictates that your home is worth less, then it is worth less if you go to sell it. That is the same for every investment under the sun.

True, but most "investments" are relatively liquid and of far less important to the holder.

Why should houses be any different.

You really need an explanation of why housing is a different type of investment than shares of Budweiser or Treasury bonds?

That's called risk. Asking the gov't to eliminate risk is asking it to eliminate reward as well. Eventually you end up with a command economy. And we know how those work out.

No one is suggesting removing risk -from the homeowner, or from the banks you seem so afraid to offend.

 

[GWV5903]

Too many houses. Too much supply. Simple as that.

Supply/demand won't be back into balance for at least another two years, maybe longer.

Demand is there, credit isn't.....

The buyer who can qualify is afraid to take the risk with the current economy, catch 22....

The S & L Crisis is why most Americans have been able to afford a home over the last 20 years, if it had not happened you would pay $500K for a 1250 sq. ft. home in East LA.....

 

[Toro]

In Europe, some are seriously recommending destroying real capital (homes) in order to reduce supply and improve the lot of financial capital.

Only an economist who works in a cave could come up with such a plan with a straight face.

The government is creating - again - massive distortions in the economy by not allowing prices to clear.

As I asked the other poster: If homes are selling for less than cars, is the problem here an issue of the price-clearing equilibrium? Or is it perhaps something else?

The median home price in the United States, if I recall correctly from the last release, is $177,000.

The average annual run rate for home construction for the prior decade was about 1.2-1.4 million. During the housing bubble, we were constructing 2 million homes a year. We built too many homes.

Now, home prices relative to income and rental rates have come down to about the long-term average. Normally, one would expect home valuation to have a prolonged period of undervaluation, just like we had a prolonged period of overvaluation. That undervaluation would induce marginal buyers into the market, which is what we've seen in some areas such as Florida and California. Undervalued homes would increase the sale of homes. The government is resisting this because they are scared to death of what it would do to banks' balance sheet. But by doing so, it slows down the cleansing of bank balance sheets, prolonging the economic malaise.

The distortions are primarily in monetary policy. Too much credit is finding its way into speculative activities. This is why gold is at $1360 and silver went up 40% in two months. It channels capital away from productive uses into speculation, which can have devastating effects. This is a big reason why we had both the tech and the housing bubbles. Now the bozos who claimed that you couldn't identify either are creating the same conditions again. And likely, the outcomes will be similar once again. Gold at $5000? Don't bet against it.