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What Will Prompt a Housing Recovery? 5 comments

by: Tim Plaehn June 25, 2009    
Tim Plaehn

Tim Plaehn

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OK, I am about done discussing housing and real estate until the June numbers start to come out. I just found this article through the Sacramento Bee Real Estate blog and wanted to highlight a couple of points. The information in the article is from the Harvard Joint Center for Housing Studies. A couple of lines caught my eye and I wanted to comment.

First on possibilities of a housing recovery:

Any talk of a housing recovery is moot until foreclosed inventory shrinks, unemployment rates abate and banks make mortgages available for more buyers.

So if house prices do start to recover under current conditions, what will happen when these events actually occur?

Using the report's most pessimistic estimate of household growth, the U.S. population will add 12.5 million households from 2010 until 2020. That looks like 1.25 million per year to me and the homebuilders are continuing to churn out homes at a 500k per year rate.

The reason why the Joint Center doesn’t think less immigration would result in even lower household formation is because of its expectation that buyer demand among the Echo Boom generation—which is five million people larger than the Baby Boomers—will be high enough to drive the housing industry’s growth “for the next 10 years.” (emphasis added)

So if the bankers can control the amount of foreclosed properties they send into the market... and, believe it or not, they seem to be trying to do that. And if the federal government can keep mortgage rates near or under 5%: They control Freddie and Fannie, why wouldn’t they? 2009 may be the bottom in the current housing cycle.

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This article has 5 comments:

  •  
    Good observation. I've been trying to reconcile how a bottom could possibly be in when there will be a steady supply of foreclosures in the next 2-3 years (due to the recast of Option ARMs).

    You answered my question nicely, the government and bankers will simply create artificial shortages to stabilize prices.
    The real estate business seems to be filled with crooks. What a nasty business it is.
    Jun 25 07:52 AM | Link | Reply
  •  
    A simplistic view to a much more complicated problem.

    First, it does not take into account the limited pool of buyers. Every time someone loses their home to foreclosure, you lose a potential buyer for around 5 years. Move up buyers are virtually gone as they are locked into their existing homes underwater. Just guessing but I would estimate that this influence has impacted the buyer pool by 50% of normal.

    Second, sentiment. When I was in court on Monday, I was talking to a group of attornys that had invested in a REO pool that a local real estate person put together about a year ago. They were complaining that they were told it was the best time to buy last year and now all of their investments are underwater. The investor pool is beginning to complain and first time homebuyers are also complaining that the real estate industry has made grand claims of a bottom only to be misled.

    Sacramento being a good example, the layoff from the State and local government are going smack the economy even harder than it already did.

    Its nice to have an optimistic view but if I have learned anything from this time around... they cannot honestly tell us the truth as the truth will make things worse. It is not just about manipulating sale, it is deception. "They" for purposes of who I speak is the government, real estate industry, banking industry, mainstream media and certain types of industry sponsored consumer groups. When they are speaking, best not to listen because they are not in a position to tell the truth.
    Jun 25 09:57 AM | Link | Reply
  •  
    Phoenix - I agree.

    The gov't just can't tell the truth. Not so much because they're devious. It's like a football coach who can't tell his players it's very unlikely they'll win the big game against a superior team. It may be true, but you can't speak the truth, deflate your players and give yourself absolutely NO Chance of winning. In fact, the coach, in an effort to boost his teams' confidence and morale often lies to his players. The coach tells his players that there's nothing to fear, they have a great plan, and if they execute the plan they should win the game.

    Obama/government has a tough job in handling the economy. Like a coach, the govt has to be honest with the people to a point but not so honest that you deflate people's confidence and morale. Things are really bad out there and all banks are close to (if not already at) insolvency. For Obama, he has no choice but to hide critical data from us, pump money into the system and prop up asset values on the banks' balance sheets to give the appearance of solvency. I'm a free market guy but this is one case where if you let the free market forces do their thing, we're going to the Great Depression and fast.
    Jun 25 01:02 PM | Link | Reply
  •  
    Q: What will prompt a housing recovery?

    A: A really super big fire.
    Jun 25 07:54 PM | Link | Reply
  •  
    Lower prices.....
    Jun 26 02:16 AM | Link | Reply
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