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HomeWater Finds Its Own Level
Posted by Larry Doyle on May 6th, 2009 5:15 AM |
If housing led us into this mess and is going to lead us out, then bring an extra pair of boots because we still have a long way to go.
Could the government intervention in the housing market promote short term support but also long term pressure? What do I mean? As I wrote yesterday in Mortgage Magic or Mortgage Mayhem, the government is providing real subsidies in terms of mortgage rates, guarantees, closing costs, and points. These subsidies are generating support to segments of the housing market. That said, housing in general remains under severe pressure in many regions. The higher priced markets with very limited government intervention are virtually stagnant.
Pressure from the higher end is actually prompting some banks to allow for short sales in which the bank absorbs the loss from a home sold below the outstanding mortgage balance. Why would a bank do that? Very simply because the bank believes a sale now, even at a loss, is better than a foreclosure later generating an even greater loss.
I think we will see further downward pressure on prices and a delay in real improvement in housing due to the fact that more homeowners are now under water on their mortgages. The WSJ reports, House Price Drops Leave More Underwater. How many are underwater? Almost a third of American homeowners!!
Government intervention is simply attempting to apply sandbags to this problem. While I fully empathize with the families impacted, these sandbags are no remedy or foundation for a long term fix. In fact, I think these sandbags are potentially causing pools of private capital to refrain from entering the market. Why is that? A market that is being artificially supported will always cause real money to wait in the wings.
As the water finds its own level, the private capital will definitely enter. In so doing, it is very likely the private capital will ultimately push the market to levels even higher than current.
Any market participant knows, though, that a market that is manipulated may stay elevated for a short stretch but will move lower, find its natural clearing level, and then move higher. Housing is no different.
LD
Housing Prices Plummet, Consumer Confidence at All-Time Lows
Posted by Larry Doyle on March 31st, 2009 11:42 AM |
While recent housing data has shown a pickup in home sales and housing starts, albeit from very low levels, data released this morning showed no stability in home prices. The WSJ reports:
Most of the nation appears to remain on a downward path, with all of the 20 metro areas reporting annual declines, and nine… falling more than 20% in the last year,” said David M. Blitzer, chairman of S&P’s index committee. Both composite indexes and 13 of the 20 metropolitan areas reported record year-over-year declines.
As of January, the 10-city index is down 30% from its mid-2006 peak and the 20-city is down 29%. The two indexes have fallen every month since August 2006, 30 straight.
The indexes showed prices in 10 major metropolitan areas fell 19.4% in January from a year earlier and 2.5% from December. The drop marks the 10-city index’s 16th-straight monthly report of a record decline.
In 20 major metropolitan areas, home prices dropped 19% from the prior year, also a record, and 2.8% from December. (more…)
