Is Relief on the Way for Housing?

Posted on April 08 2010.

The chart above sums up nicely the effects of rising unemployment on the housing market. But, despite what the analysis suggests, is a relief really on the way?

Investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls. We will not get a market capable of sustaining growth until the value of property decreases or income increases to the point where more buyers have more opportunities to purchase.

Let's look at income …

This chart makes painfully clear that a real recovery in housing, if any, may be years away. As the 2002-2009 column makes obvious, payrolls do not exist to support a housing recovery.

This is the reason it makes sense to have all the programs to keep homeowners in their homes: not just because it's better for banks (the bailout party of first resort), but because at current prices there just aren't enough "qualified" buyers — even with hefty tax credits as incentives.

On a brighter note, homeownership rates have held fairly steady during the last year …

But on the next page, look at the "?shadow inventory' of homes ready to morph into home foreclosures in your neighborhood. In fact, according to a recent MBA survey, we can anticipate an "unprecedented wave of mortgage delinquencies and foreclosures" into 2011 …

Until excess inventories burn off, we can expect more price declines into next year — especially with unemployment at high levels. The new government mortgage assistance programs should help to ensure the fallout pattern is more of a wave than a spiral.

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Readers who liked this also enjoyed these posts:Are US Homebuyers Sidelined or Surging?Snow Dumps on Housing MarketMore Homes, Fewer Buyers Weaken Housing Market

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92683 Responseshttp://wallstcheatsheet.com/breaking-news/economy/is-relief-on-the-way-for-residential-housing/?p=9268/Is+Relief+on+the+Way+for+Residential+Housing%3F2010-04-09+02%3A31%3A12Carolyn+Austin to “Is Relief on the Way for Residential Housing?” Pragmatist says: April 9, 2010 at 4:49 am

"This is the reason it makes sense to have all the programs to keep homeowners in their homes: not just because it’s better for banks (the bailout party of first resort), but because at current prices there just aren’t enough “qualified” buyers — even with hefty tax credits as incentives."

Really? Did you just say this? Wow. And if we hire enough people for the census then everyone will be employed and voila' – problem solved. Maybe when they are finished counting people they can count clouds. We should let this stuff come back to market value. The banks need to write down their holdings and stop hiding this crap on their balance sheets. Some banks will fail. But the houses will come down to a fair market value and then there will be PLENTY of qualified buyers. Young people who were not party of the idiocy of the last decade. The problem is pumping up the prices artificially is unfair to those who would otherwise be able to afford them.

"The new government mortgage assistance programs should help to ensure the fallout pattern is more of a wave than a spiral."

Should? Wow. I give up.

Reply WallStCS says: April 9, 2010 at 1:15 pm

There are two ways to correct markets: through price or time. In order to prevent the Great Depression 2.0, the government chose time. Although I do not agree with the extremity of the tactics, I do agree that I prefer a muddling economy rather than riots, crime, and eating rice and beans.

My neighbor's father grew up at the tail end of the Great Depression. In his pragmatic view, the government should do everything possible from making sure that never happens again. I would rather take his experience-based word for it than relive what he considers the worst part of his life. It's one thing to theorize about letting markets reset. It's another to live through the reality. I, for one, am happy the value of my house hasn't dropped 90% like tech stocks did.

Reply @friedmandave says: April 9, 2010 at 2:16 pm

I'm not sure that the rate of homeownership is something we should be applauding. If too many people don't understand the terms of their mortgage, or don't earn enough money to finance the debt, then all that encouraging homeownership does is to act as a drag on the economy. Government policies that encourage people to take on mortgage debt (in the form of interest tax deductions and acting as a backstop against mortgage defaults) merely encourage capital to be invested in unproductive assets such as real estate rather than in productive capacities such as building businesses, developing infrastructure, improving education and healthcare, etc. So we have trillions of capital tied up in fallow "investments," which often don't even yield a return on principal invested.

Color me unimpressed with the thesis that there's anything good about widespread homeownership.

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Tags: assistance programs, Bailout, depressed level, excess inventories, fallout, government mortgage, home foreclosures, housing market, housing starts, income increases, mba survey, mortgage assistance, mortgage delinquencies, premium service, price declines, real estate sectors, reits, tax credits, unprecedented wave, valuable research

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