Real Estate Market Slow To Respond To Government Plan

This is a solid story by the AP, which outlines a lot of the issues I believe will be causing the housing "recovery" or "rebound" to be far, far, far off into the future as we've outlined many times. Wall Street seems to like to grasp at simplistic concepts such as "gasoline prices drop 50 cents, buy every retailer on Earth as the consumer is back". As we've outlined there has also been a big move into housing related stocks of all sorts and varieties [Sep 11: Hot Money Says a Housing Turn is Coming Soon] as people are going off old playbooks - i.e. the corporate led recessions of early 90s and early 00s. This is not that type of recession, but you can't argue with armies of quant funds and a waterfall of money insisting it is.

Here is the scoop. We are not a nation of savers. We were able to "pull in" the natural pool of natural home buyers way ahead of their time - so many of those 2004-2006 buyers should of been coming online in the next 1-3 years. They're already in (and in some cases already out - burnt badly). 70% of Americans live paycheck to paycheck. Many have no real savings. Now you are asking them to exist in a world of 10% down, or 20% down. From where? Ah, their old house... no wait.... that's how it works when housing prices are going up. It doesn't work so well when home prices are flat or worse - going down. So they have no "bank savings" (as opposed to equity) Throw on top of that the first consumer led recession since the early 80s and median home prices which are still far out of reach of many when you use traditional income to price ratios [What Should Median Home Price be Today?] - and it all ties into no housing recovery anytime soon. Foreclosures are still growing.

Alt A mortgages tsunami has yet to fully hit the market. And most "sales" the pundits cheer about are foreclosure sales - not natural market clearing sales of a buyer and seller. Many Americans who would like to buy are stuck in a house they cannot sell. Because of the foreclosure 4 streets away which is pricing the market well below what they deem fair. Of course the last and most simple reason is for the simple fact - why would people buy something that has risk of falling in price in months?

So I'm not saying housing stocks cannot rally - heck I own one - knowing Wall Street will jump ahead of each other to be the first to catch the bottom. For all I know they go on a 5 year rally from here, in anticipation of an ever elusive turn in the real economy. Stocks can disassociate from reality for long periods of time - the market shows us this continuously.

Pundits can continuously point to the "recovery in 6 months" - and when 6 months pass and no recovery is here - they can repeat the same mantra "just wait 6 months" - until they eventually nail the correct 6 months. So my comments are to the real economy, not the "stock market" economy which many times seems to be an alternative universe (remember we ran to all time highs in October 2007 as the "forward looking mechanism" of the stock market missed by just a tad a few things it was forecasting 6-9 months out - by few things, I mean EVERYTHING)

• By late Saturday afternoon, only three prospective homebuyers had visited the open house Valerie Morrill was hosting. The Prudential real estate agent recalled a year ago, she'd see 10 to 15 people during an open house in this midtown Kansas City neighborhood. She said the government's efforts to bring stability back to the economy and the credit markets may help but she's seen no immediate improvement.
• "It's just the buyer pool is so low," she lamented. "Eighteen months ago, you needed $500 to buy a house." Now, all the special rates and government programs are gone, leaving buyers facing a 10 percent down payment. "You have to have money and nobody has money."
• By purchasing mortgages en masse from banks and other lenders, the U.S. Treasury will have more power to stop the cascade of foreclosures and help more Americans keep their homes, which will act as a brake on falling prices. The question is, how fast can they act? More than 4 million homeowners were already at least one month behind on their loans at the end of June, and almost 500,000 homeowners had started the foreclosure process, according to the Mortgage Bankers Association.
• In California, for example, some neighborhoods have been blighted by the plethora of empty homes. Joe Minnis, a real estate agent for Prudential California, knows foreclosed homes in San Bernardino that have been systematically stripped, trashed and tagged by gang members. "Neighbors are taking turns parking their cars in the driveways of vacant homes just to make it look like someone lives there." he said.
• "We are seeing buyers. The interest is there. But people have problems," said Marc Montalvo, who is trying to sell a house in Hollywood, Fla., that he bought as an investment in June and fixed up. "They can't qualify for the mortgage. Or they need to sell their home before they can buy another, but that house isn't selling. Or they have been through foreclosure. We try to work with people because we want someone in the house." But by lunchtime on Saturday, no buyers had responded to his open house posting on Craigslist.com.
• "People want to buy. The problem is you can't get them qualified for financing because the lenders have tightened up so much that only people with the highest credit ratings get approved," Montalvo said. "We haven't seen the interest rates fall and the qualifications become more realistic." (fall? 6% is historically low? Another sign of the times - people expect low 5% rates now)

Comments

[Responsibility:]

To encourage people to be responsible, we should have tax penalty and special points for future loans on load defaulters and tax incentive to people who keep their mortgages, to those who take on new mortgages, and to those who increase their mortgages, similar to tax on big cars and incentives for small/hybrid cars. Please spread this if you agree so that the politicians will do something.

2008 Sep 23 02:29 PM

[Urbane Gori...:]

Actually... Most people can barely add or subtract... How about aiming your irritation at those that lent the money to start with. And while you're at it, throw in Congress and Greenspan for agreeing to it. If you would not be willing to lend money on a teaser rate, knowing full well that a person couldn't qualify on the future value, would you? I wouldn't. And the banks and mortgage writers wouldn't have done so either, except they were able to bundle the new debt and sell it off, so it became someone elses responsibility .. It's a shell game and our administration accepted it in trade for a few golf games, a box of chocolates and a promise of another term in office.

All the jerk-offs in Congress presently busy quizzing Paulson and Bernanke should never have allowed this process. The same Bankers that will happily raise the interest rate on someone who is late paying their bills ( Gee! That helps ) and pontificating about personal responsibility were the same parties that lobbied for the right to push these loans while padding their own golden parachutes. And then ogf course there's Greenspan, who is pushing his sad excuse for a book, while really being fully responsible for this mess.

jegan

2008 Sep 23 03:08 PM