Housing Doom Housing Bubble Blog

According to Wickipedia:

Hurricane Katrina was the costliest and one of the five deadliest hurricanes in the history of the United States.[1] It was the sixth-strongest Atlantic hurricane ever recorded and the third-strongest hurricane on record that made landfall in the United States.

In spite of the devastation, there were no "hurricane prevention" bills.  Congress recognized that while the emergency response could be improved, hurricanes cannot be prevented.

We are now facing a devastating storm in the housing market.  Unlike Katrina, this storm cannot be considered an "act of God".  Mistakes by government, lenders, buyers and builders caused it- but it cannot be legislated away.  Housing will not be "rescued", but Congress continues to try:

WASHINGTON (Reuters) - The U.S. House of Representatives is due on Wednesday to begin debating a housing rescue package that could see the government buy up $15 billion of abandoned homes and help an estimated half million homeowners facing foreclosure.

The sweeping bill would offer fresh spending, tax credits and a new government guarantee on many risky loans to bolster the national housing market.

If the government buys $15 billion dollars worth of abandoned homes, it will take them off of the balance sheet of banks, but it won’t fill them with homeowners.  Values will continue to decline in areas filled with nuisance housing.  The values will fall on the surrounding properties, increasing the chance of foreclosure for the neighbors of unwanted houses.

Thankfully, the president is threatening to veto this legislation:

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When you ask "Who’s responsible for the bursting of the housing bubble?"  Fingers fly in every direction to point out the guilty- naive buyers, crooked lenders, low interest rates- you’ve probably know the possible suspects by heart by now.  An interesting paper called "Driven to the Brink" however, points the finger in a different direction- high gas prices: [Hat tip to Blanche Evans at Realty Times!]

The popping of the housing price bubble coincided with the run-up in gas prices. It can be argued that the magnitude of the increase in gas prices wasn’t sufficient to offset the gains households were seeing in the housing market. In a more steady market, gas price increases might not have been enough to derail the housing boom, but in the heated atmosphere of the bubble, gas price increases may have been the trigger that broke the expectation of continued growth. The households most affected by the rise in gas prices were those who had stretched the family budget to buy a house on the suburban fringe, often commuting long distances in the process. These families spent a higher fraction of their income on gas than the typical household and had less flexibility to accommodate the higher price of gas than others. And for the same reasons, as gas prices rose, houses in these far-flung neighborhoods tended to lose their market appeal first and fastest.

This spells trouble for the suburbs:

Observers of local real estate markets have noticed that not all neighborhoods in a given metropolitan area are affected by the same degree by the housing downturn. Within metropolitan areas, it appears that markets on the suburban fringe are generally experiencing the greatest declines, and consumer demand remains relatively stronger for close-in properties. For example, while exurbs in places like Denver and Salt Lake City offer big houses on large lots at low prices, many buyers today are forsaking size for the conveniences of being close to the city, often in areas that are redeveloping.

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