Old Doom friend Mike Folkerth sends an invitation to re-post this. Sort of a going away present 
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Good Morning all of you independent thinkers out there, your King of Simple News is on the air.
Spring always brings with it a renewed hope and I want to do my part. As I continually shed light on the things that must be changed, in the mean time we all have to try and live in this insane world.
When I wrote “The Biggest Lie Ever Believed,” I predicted nearly all that is happening today, well before there was an indication that we were entering recession. I also made those predictions at time when the most influential people in the United States were saying the exact opposite.
My purpose for predicting future economic events was to encourage people to change their spending and debt habits prior to the downfall. I learned that most folks have little appetite for predictions of disaster regardless of the provided math. I was branded by many as the new Chicken Little; right up to the day that the sky actually fell.
After the sky fell, I was then accused of causing the sky to fall. Ya can’t win, but I keep trying.
It is difficult for me to accept that we live in a country where much of our historical gains are based on another person’s losses, but alas, it is in fact the way the cookie crumbles. And housing is certainly not an exception to that tenet.
I have stated many times that I’m not an expert in anything (other than future predictions so far) but I am very well versed in the complex discipline of real estate investment.
Let me try and make the housing story as short as possible. The flood into the home market was created by our government as a last ditch effort to provide a temporary stimulus that was intended to revive a failing economy. How’d that work out for ya?
Everyone got in on the act including the unscrupulous mortgage lenders who were simply following the government’s lead. Don’t think so? Take a look at Fannie and Freddie.
Housing was akin to a new gold rush with millions rushing toward the source of the gold which in reality held only enough wealth for thousands. And, similar to the gold rush, most who stampeded got financially crushed.
Like the gold rush, the empty boom towns remained when the crowds went home. This is the part where you can win at this game; empty boom towns sell cheap and so do empty houses. Aspen and Telluride were once empty mining boom towns and sold cheap!
Home prices have now been driven well below replacement cost by market forces. The price of homes today has nothing to do with replacement costs and all to do with a dandy recession of enduring quality.
If you are in the market for a home and particularly if you are a first time home buyer, have a down payment, and are securely employed doing some useful; now may well be the time to buy.
The government will assist you with an $8,000 credit, and low low interest rates. The seller will assist you by taking a haircut right down to their scalp. Everyone wants to help.
Phoenix recently reported boom time numbers of home sales for April, 2009. “How could that be?” You ask. I was dying to tell you.
A full 40.38% of these sales were homes selling for under $100,000. Many were homes that sold in the $50K to $75K range. But the real story is that these people weren’t buying $75,000 homes, they were buying $150,000 homes for $75,000!
This phase will last right up until the inventory of financially distressed homes is depleted. Remember, that there is near zero building occurring at the present time. At the point when it becomes necessary to build a new home, the price must return to the actual development and building costs.
As the time goes on, the next group of homes to see greater activity will be the next pricing level up; homes in the $200K category that were originally $300K.
It also pays to remember that there is no such thing as affordable housing. Development and home construction cost a lot of real time and money, unless of course, the government makes housing affordable to one group by extracting the money from another group. And that’s not affordability; that’s theft.
Want to know more about the housing market? Visit my friends at http://housingdoom.com/ for some real insight into the murky waters of real estate.
Questions? Please comment and ask.
Real estate investment is a complex subject and a long term commitment, but there is a time and place to buy. Do so with both eyes wide open and someone on your side who understands the real estate business and the greater economy inside and out.
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[1]: I’m planning on cutting back on my independent posts for a while. The NY Fed H.4.1 Updates and some other stuff will likely carry on, but without much commentary. National-level housing finance sort of jumped the shark when FHFA took over Fannie and Freddie, so I’m mostly retreating behind the sidebar at least until something starts making sense again in that space. Thanks, Mike, for the kind words, but knowledgeable Doomers will appreciate that the heavy RE insight around here goes with twist’s posts during this phase of the crisis while the market is seeking a post-euphoria base for recovery. JM
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With all due respect, this sounds a little like something from The Onion.
“At the point when it becomes necessary to build a new home, the price must return to the actual development and building costs. ”
Shouldn’t “must” be replaced with a qualified, “should”?
I mean, isn’t that part of why banks are in trouble now?
Ah! A kindred contrarian spirit who is not afraid to call it as he sees it!
I agree with you completely…except for one caveat: the trend and opportunities are not the same in every market. Right no there is a great disparity between micro-markets in neighboring communities. Yes, there are definitely buying opportunities, and I wish I could take advantage of several of them!
However, to avoid repeating the errors of the past, how about initiating an independent financial evaluations of buyers PRIOR to starting the loan application process? This will eliminate the whims and continuation of past indiscretions by over-zealous lenders and give buys the confidence to move into a particular price range.