Housing Doom Housing Bubble Blog

This kind of horse sense is too good to be relegated to the sidebar.  John F. Wasik of Bloomberg has a blunt message for home sellers- Just drop the price:

Nov. 19 (Bloomberg) — Raffles, festive balloons, open houses, car giveaways. Will any of these incentives sell houses? Not at the moment.

You don’t have to be particularly creative in a market glutted with homes for sale. The painful reality is that homes are commodities. There are more than 4 million of them sitting out there unsold and more coming on the market every day due to foreclosures. If you really need to sell a house, price is the one lever that will move a property.

Almost everywhere your competition is abundant while buyers are waiting for prices to fall even more. U.S. existing-home prices are expected to drop almost 2 percent this year nationally, according to the National Association of Realtors, and are likely to fall further in areas oversaturated with homes for sale.

“Buyers just want price,” says Mike Morgan, a Stuart, Florida-based lawyer, real-estate broker and consultant who researches property markets for hedge funds and financial institutions. “Buyers have become educated and they can easily cut through the fluffy incentives.”

Morgan doesn’t see any national rebound until at least 2010; maybe longer if builders keep constructing homes, and if banks continue dumping foreclosed properties on the market.

Anyone who spends any time in the field can see that builders keep building and banks keep collecting REOs, so it’s going to be really bad for a really long time.

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It’s a short business week this week, but we’re still here and working.  I thought we’d start we’d start out listening to one of my favorite analysts, Peter Shiff, telling the government to stay out of the mortgage mess:

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With foreclosure rates rising across the nation, it’s hard not to look at Cleveland, which has basically become the foreclosure "capital" of the U.S., and ask "What caused this?"  CNN Money said on November 14:

What made Cleveland the nation’s foreclosure epicenter?

Like most rust-belt cities, it’s suffered serious economic setbacks. The city lost jobs at more than three times the national rate during 2001 through 2003 and has not had a meaningful recovery since, according to Richard DeKaser, chief economist at Cleveland-based mortgage lender National City Corp. The state of Ohio recorded a quarter of all U.S. manufacturing job losses since 2001.

Add considerable population shrinkage: With 450,000 people, Cleveland has fewer than half the residents it boasted in 1950, when only six cities in the nation were larger.

While massive inventories in markets like Phoenix, Las Vegas and Miami were caused by overbuilding, cities like Cleveland and Detroit have had rising inventories as job losses have forced residents elsewhere.  It would be expected then that these forces alone would be enough to cause prices to fall and foreclosures to rise.  Add lax lending standards and ARM resets to the mix and the situation worsens, but you can’t blame it all on bad lending.  At least some of us can’t.  Check out this video- you would think that Cleveland would be puttering along nicely today- if it weren’t for those big bad lenders.

Don’t get me wrong- there was a lot of bad lending going on.  Let’s not make the mistake, however, of putting all the blame on bad mortgages.  As overbuilding and speculation have caused prices to fall and homeowners to become more vulnerable in other areas, economic woes have contributed to the problem in Cleveland.  Why is this important? Because if you haven’t identified the problem, you won’t have the right solution.

For example, the Fed lowering interest rates won’t save housing, because the problem with the housing market is not high interest rates.  In Cleveland, if somehow every outstanding bad loan could magically be transformed into a good one, as long as the local economy is faring badly, the housing market will be performing badly as well.

Americans love to "cut to the chase" and hear the definative 30 second sound bite that defines the problem and gives a solution.  The solutions to the problems in the housing market aren’t simple, and neither are the problems- so let’s quit blaming them all on subprime.