What Happens When the Government Stops Propping Up Housing? 15 comments
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As we all know by now, government spending and the Fed’s liquidity programs have provided a substantial boost to the economy. Some would argue that these government programs are simply delaying the inevitable and masking over the real problems in the system.
According to Annaly Capital Management, these programs are having an especially profound impact on the housing market. As we’ve often argued, many of these programs are nothing more than grandiose wastes of taxpayer dollars and do nothing more than kick the can down the road while adding substantially to the debt burden of the future.
After all, this short-term painkiller does nothing to actually attack the long-term cancer that is plaguing the economy (it’s the debt, stupid!). Evidence of this false recovery is found perfectly in last months housing data as the government nearly let the homebuyers tax credit expire:
We love the daily “event” of data releases. On most mornings, you can look around our trading desk and gaze upon a sea of Bloomberg terminals all pointed to the ECO screen, the economic release calendar showing the estimates and actual of each data point to be released that day. On 11/19/09, a data point showed up on the screen that we hadn’t really paid attention to before: RPX Composite 28dy Index. It came in at 193.96 for September 17, versus 200.29 in the prior period. We didn’t know what any of that meant, but we are always in search of new data to track, so we went digging. As it turns out, it’s pretty interesting.
The data comes from Radar Logic, so we’ll let them explain in their own words what the numbers are:
Radar Logic is a technology-driven data and analytics business that produces a daily “spot” price for residential real estate in major U.S. metropolitan areas.
Data are captured from public sources and translated into the Radar Logic DailyTM Prices for 25 U.S. Metropolitan Statistical Areas (MSAs), the Manhattan condo market, and a 25-MSA composite. The prices reflect the actual prices paid for residential real estate on any given day and are computed using proprietary and transparent algorithms.
The 28 day index that we are looking at represents prices over the 28 day period ending September 17. The index measures price per square foot. There’s obviously a bit of a lag since we are just now getting September prices, but that’s fine because this particular time period is an interesting one. The National Association of Realtors (NAR) had been on a campaign to keep potential users of the new homebuyer tax credit from missing the cutoff date. All of the following quotes from NAR press releases are from NAR President Charles McMillan:
- 8/21/09 – potential homebuyers “should try to make contract offers by the end of September”
- 9/24/09 – “buyers have little time to act”
- 10/1/09 – buyers “must make a contract offer very soon to have a reasonable chance of qualifying” for the credit
Based on the urgency of the message (Mr. McMillan is a practicing realtor himself in Texas), we’re guessing that the vast majority of buyers planning to use the credit had already made their offers by the end of September at the urging of their realtor. Below, we take a look at the new housing recovery by graphing the Radar Logic price-per-square foot with another recent data point that disappointed, new single family housing starts.
Interestingly enough, prices have already begun to fall by mid-September after a sharp rise following the initiation of the $8,000 first-time credit. This is starting to remind us of another chart showing what happens when the government steps away. The extension and expansion of the tax credit wasn’t approved by Congress until 11/5/09, so there was at least 1 month (October) of housing activity that we would call “normal”, unmolested by incentives. It should be instructive to watch data releases for this month. But alas, September data are still trickling in. Our ECO screen tells us that next week we get S&P/Case-Shiller and FHFA housing data for September. Don’t worry, the housing market stimulus is back in effect until April 2010, so we won’t have to worry about the housing market until then.
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Any recovery cannot be sustained without continuous Fed $. Meanwhile the public debt increases and our ability to re-pay it becomes more and more of an impossibility.
Housing needs less government involvement. Fannie, Freddie, buying of CMO's- ALL WRONG. I even think the mortgage interest deduction, even though I benefit from it, needs re-thinking.
If the loan market was not propped up by the government, anybody want to guess what mortgages would be at? 10%? 20%? Unobtainable?
Remember that interest rates going from the impossible 5% they are now to a more free-market 10% will effectively increase the price of a home for the average buyer by about 50%. Put that in your models and smoke it.
OP
Predictor, you've benefited from the interest deduction? That could be true if home sellers haven't had access to pencils for the last thirty years.
When will the revolution start?
What will trigger it?
Probably at this point it is spiraling food prices. If you can;t afford to buy food then you get pretty nasty.
Sheeple do not care how many schemes the govt inacts if it does not impact'em. lol.
On Nov 23 12:06 PM OptimizedPrime wrote:
> Remember, the $8k cash-for-condos deal is NOTHING compared to the
> $TRILLIONS the govt. is spending to keep writing liar loans and NINJA
> loans.
>
> If the loan market was not propped up by the government, anybody
> want to guess what mortgages would be at? 10%? 20%? Unobtainable?
>
>
> Remember that interest rates going from the impossible 5% they are
> now to a more free-market 10% will effectively increase the price
> of a home for the average buyer by about 50%. Put that in your models
> and smoke it.
>
>
> OP
Kirby
However I believe government support will be with us for a while, until the recovery is confirmed.
The ONLY stimulus that I see proper at a time like this is massive INVESTMENT in our national infrastructure; something we NEED anyway. All we are doing now is pissing away the future for our children and grandchildren.
WE caused the mess and WE should bare the pain and consequences of it. All we are doing now is putting off the inevitable because nobody in Washington has the balls to do what's right for the future of our progeny.
On Nov 23 01:42 PM Nathaniel C wrote:
> I have a simple solution to the housing problem. Let the price of
> homes fall to the proper clearing level where buyers (who can actually
> afford a house) come in stabilize the market in a sustainable manner.
> It would hurt in the short-term but provide for real recovery that
> would benefit the economy.
carliniscomments.com/a...
Houses "underwater" (where the mortgage is larger than what the house is worth) have gone from 1 in 10 to 1 in 5 to now 1 in 4. (In a very short time period)
When Deutsche Bank put out a statement about a year ago that houses would probably get to 1 out of 2 being "underwater" many "experts" said no way. Based on the continuing downward spiral, I don't think they were that far off.
Nothing will solve this except people getting jobs -- good jobs where they are not underemployed.