THE HOUSING PROBLEM IN 3 PICTURES
My outlook for housing remains largely unchanged in recent months. Earlier this year I said the housing market was likely to come under renewed pressures in the second half of 2010 as government intervention ended and the market was allowed to begin clearing:
“As I said above, the most likely scenario is the “work-out”. Government stimulus continues to bolster the private sector in the back half of 2010, but the lack of direct aid in housing begins to weigh on the housing market in the second half of 2010. Negative seasonal trends make for a very difficult H2 in housing and a tough start in 2011. The economy appears fairly strong into the latter portion of 2010, but the dwindling stimulus ultimately pressures the private sector. Demand for housing remains tepid as job growth is weak, the unemployment rate remains above 8% into 2011 and the negative inventory trends prove too much for the real estate market to overcome. Ultimately, prices decline 7%-15% over the course of the coming 2.5 years.”
We’ve seen clear evidence in recent weeks that the housing double dip is in process. Price declines have varied depending on different reports with the prices of new homes reported as low as -13% year over year. The problems in housing remain entirely intact and as I’ve repeatedly stated over the course of the housing crisis it remains a problem of supply and demand.
If you’re attempting to visualize the problems in the housing market look no further than the following three charts (via Mortgage News Daily):
Demand
Supply
Price
With supply near its all-time highs and demand near its all-time lows it’s safe to assume that prices have only one direction to move and that’s lower.
Google
Who will buy the homes of tomorrow? 2010 highest average monthly foreclosure filings on record. 330,000 average monthly foreclosure filings in the United States. Student
Or doctorhousingbubble
American housing too expensive and the multi-income trap will not save the housing market. Banks have laundered their bad bets through the Federal Reserve and GSEs while working and middle class income has eroded.
calculatedrisk’s latest take on the economy is worth looking at:
http://www.calculatedriskblog.com/2010/11/recent-improvement-in-economic-news.html
Thanks for posting those charts. They each paint a pretty grim picture, cannot figure out why the market hasn’t reacted (or maybe it has….).
These are just excellent, excellent graphs TPC. You want a stimulus program, destroy a lot of the inventory, simply rip it down and plant grass or a park or something. Freeze new homebuilding except for those houses already under contract or where a signed intent to purchase is available with a good deposit. Offer incentives to homebuilders like farmers to do so.
And this economy will come ROARING back once this inventory hang is worked through.
The biggest problem with housing is INVENTORY OVERLOAD… Remove that and we are on a good track. Doing so would not only help the banks BS, but also the everyday American’s home values.
If government gets involved and does so, residential might be coming back in 5 years. Otherwise, it’s muddling through at these or slightly lower/higher levels for 20 years I think.
Ban new home building and everyone on the planet would call you a socialist. I’d be all for it though. It would be great for the housing market, great for the economy and great for America. Many of these homebuilders would have failed if more banks had failed. If the system would have been allowed to clear we would have seen this occur naturally. Of course, that didn’t happen so I personally don’t have any problem with forcing some of these companies into BK. The homebuilders have become a problem. Not a solution.
Agreed, but I’m not a socialist, lol. My view is do it with regard to incentives. Put them on the dole for a little while, shut down new home construction. That is 1 part of a two prong strategy.
Second is have the banks really own up to their inventory. Force significant haircuts on property, create an entity just like we did with S&L or hell, reinvest the TARP paybacks, and go to the banks with just garbage and offer a range between 50-80% for the worst of it that can be torn down and replaced with sod/turf.
Wow, what a shot in the arm that would be on all residential fronts.
Take a look at gold/oil/copper today buddy. Those are prescient despite weakness in equities I think, even with dollar strengthening.
Thank you for the graphs I cant stand how the talking heads for the past 5 years have been trying to tell us the housing problem is over. They should all look at these kind of charts.
This line is a COMPLETE JOKE: “Ultimately, prices decline 7%-15% over the course of the coming 2.5 years.” It seems you wrote this earlier this year. I say housing is going to fall off of a cliff. There is way too much artificial stimulation of the housing market. Here’s what will potentially KILL housing prices – rising interest rates. If interest rates rise to where they should be- 8% or higher, housing will get annihilated.
There’s one way the banks and the government could stop the decline of housing prices. They could continue to devalue and debase the dollar, making housing prices stablilize or even increase. In such a way they could make all home worth $500,000 or more, but you would then be seeing massive inflation in consumer goods, food, energy and such. This type of home price stabilization is illusory however. It might save the banks, but it would be devastating for the economy as a whole.
My Take:
It not a joke, it’s a reasonable prediction. I agree housing drop would be cliff-like in the absence of government intervention, but it seems self-evident that government is not going to allow that to happen.
What will be intereting is whether the government will even allow a 10 to 15% drop, without taking stimulative action.
As for bulldozing houses…the waste is rather stunning. Landfills filling up, etc., gotta be a better solution…maybe house mothballing?
Even more from Mortgage News Daily….
http://www.mortgagenewsdaily.com/11242010_housing_fannie_mae.asp
Most signinficant finding?
“Half of all respondents ranked homeownership as less safe than putting money into a bank account.”
Count me in the half that thinks homeownership as safer than money in the bank, (but strongly believe you need money in the bank to be safe as a homeowner!)
Check this out!
http://www.housingwire.com/2010/11/29/a-loan-in-foreclosure-492-days-%e2%80%94-and-growing
“The average age of a loan in foreclosure hit 492 days in October”
That means there are quite a few that are beyond 492 days…, and I assume with no payments.
That’s about $24K in missed payments (assuming average payment of $1500 time 16 mo). Wonder if the RE taxes are being paid by anyone on those? The lender?
Paul Jackson has an interesting take on the issues. Worth reading.
Great charts, really puts housing into perspective.
I am amazed at the lack of fluctuation in new home sales. If you took a 3 point moving average, the chart would be silky smooth with gentle waves. In other words the trend is very dominant with little short term (monthly randomness). wished I had the wherewithal to look at data like this back in 2007 before the $hit hit the fan. The downward trend was very established at that point.
do you have data like this that goes back 30 years or so.
How is the supply curve determined. Is it current inventory divided by last months sales or average of past few months sales.
With the job market as it is, who’s willing to buy a home when no job is safe. The banks are still holding many of these houses and waiting for the price to rise, if you want to buy the banks are now asking 40% of the loan in holding 401k and or assets. Yes I do understand the charts, most of the people are paying off old debts and spending what they can afford and are starting to save!!
Mortgage rates are historically low you can easily refinance these days your mortgage to 3%. It is the best way to save money. Search online for “123 Mortgage Refinance” they did 3.54% refinance and free analysis of my current mortgage
Maybe YOU can easily refinance. But those of us hanging on by our fingernails cannot. When you owe over $200,000 more on your home than the appraised value, are bringing home 50% less than you were 5 years ago, and have had to file bankruptcy just to keep from being homeless – I don’t think so.
The only way to solve the problem is to let the problem solve itself through market forces and get the government totally out of the picture.
Force the market to clear, any mortgage more than 3 months in arrears the bank has 90 days to renegotiate a fixed term mortgage that is no more than 50% of the HO’s income; then public auction to a person who agrees to live in the house for at least a year. The banks can take the haircut on their bad loans, they got most of it back through TARP, the HO either gets a mortgage he can afford, or the banks have to roll the dice on a public auction. Vacant “rentals” that speculators bought – 90 days to get them up to code & advertised for rent; no renter after advertising for 180 days? The property goes into low income housing pool for 3 years. Want to guess how much this would jump start the economy?
You walk seven miles into the woods, turnaround, walk seven miles to get back out. Housing will capitulate, finally reaching bottom, in 2014. Look up the comps for the house you want to buy circa 1998-2000, that is its true value. Unless you are in a place of high demand( there still are a few such places) that is the reality. Fortunately, most of us do not care much for reality. If you can live with the delusion that you got a good deal then do it, buy that house. Otherwise save your money, do your homework and in the Spring of 2014 start going to open houses. Baby Boomers will be retiring in huge swaths, looking to dump big and small houses and move to somewhere else.
I enjoyed the “solution” of the first 2 posters – destroy inventory and end homebuilding.
Who is going to pay the mortgage on a home that was bulldozed? There is a mortgage on the property after all otherwise you are just kicking somebody out of a home that is paid off. For that matter – who is going to pay for demolition? What are you going to do with all the people who work to build homes not to mention sell them?
I am always surprised people are this naive about economics – but I shouldn’t be. The cure for too much inventory and high prices is lower prices and bankruptcy of stupid lenders who are too stupid to be in business. Incompetent people need to be removed from our banking system otherwise they will just do this again in a few years.
BK wasn’t allowed to happen. If it had we would have seen many more homebuilders go bust.
Help homeowners by across the board modifications (major) principal reductions/lower interest rates/extended terms/ and/or equity sharing. Whatever it takes, stop the bleeding and keep more homes off the market. The banks have to begin changing.
Why not keep people in their homes LONG TERM for a change. The economy will heal itself this way.
Well the housing problem in western North Dakota is just the opposite. Demand is more than the area can produce because of the oil boom. I can’t find affordable housing here. Unemployment is at a record low 2%.
The housing market is a mess and I would argue a much bigger mess because of government intervention. I don’t BS as to propose that there would have not be mess had the market been aloud to run amok BUT I do argue that this mess would have peaked by now and the housing market would have been coming into the view of the light somewhere in the tunnel. As it is now and will be for years.. .DARKNESS.