Wednesday, September 02, 2009

End of housing crisis is a "mirage"

Fortune says the housing recovery won't last:
Earlier this year, as many as half of all transactions nationally were resales of foreclosed properties, largely at low prices. Since then, so-called organic sales (those not involving distressed properties) have risen while foreclosure sales have remained stable. This improved mix — together with cheap financing and a couple of popular tax incentives — helped to revive prices in some hard-hit areas. ... But with schools opening up again and the summer home-selling season winding down, sales by nondistressed sellers are likely to fall in coming months...

Adding to the pressure on prices, the end is in sight (or already here) for some popular housing subsidies. An $8,000 federal tax credit for first-time home buyers is due to sunset in December. A $10,000 California tax credit for buyers of newly constructed houses expired last month.

Another concern is that the housing woes appear to be spreading well beyond the questionable borrowers who were at the center of the first stage of the financial crisis. ... Prime fixed-rate mortgages now account for about a third of foreclosure starts, according to the Mortgage Bankers Association. ...

The pace of foreclosures could soon accelerate as mortgage servicers catch up on foreclosures they have delayed while grappling with new mortgage modification guidelines.
Here's a self-serving, tax-dollar wasting idea I wouldn't complain too much about, because it would increase the housing supply, thus pushing equilibrium prices down further:
[Toll Brothers CEO Robert] Toll argued that a four-month program that offered people $15,000 vouchers for new home construction could "put twice as many people to work, twice as fast as what's being done with the auto industry."

21 comments:

  1. Where is David? David come out and play! Idiots who say that the expiration of the $8k tax credit has little to do with demand in DC are wrong. The expiration of that tax credit will have a significant impact on reducing demand nationwide. The housing economic data will then show lower sales and lower values. This, in turn, will affect buyer psychology; even in DC. Unless Congress passes the proposed $15k tax credit for all home purchasers, the market will head down--even in DC!

    ReplyDelete
  2. purchased a home last year and the tax credit had very little to no impact of my choice. Inside the beltway $7500 is not a significant amount when it comes to buying most single family homes in this area. I saw the tax credit as little more than nice little bonus for when I filed the taxes and that was about it.

    ReplyDelete
  3. No one said that every buyer is financially savvy. After all, your post is indicative of your uncertainty that you have about your decision. If you made such a purchase without a concern for tax credits, why are you here on a housing bubble blog reading stories about the housing market? It's very telling and at the same time contradictory.

    ReplyDelete
  4. I'm a third Anon....


    "If you made such a purchase without a concern for tax credits, why are you here on a housing bubble blog reading stories about the housing market?"


    Huh?! You're making no sense here. I was heavily considering purchasing a house about 6 months ago, and I completely agree that the housing credit didn't factor into my decision. $8k on a $400k house means nothing to me. I also check this blog from time. How are these things incompatible? I don't believe EVERYTHING I read on here 100%.

    ReplyDelete
  5. edit: from time to time

    ReplyDelete
  6. Toll Brothers comparison of the new home builder industry to the auto industry is laughable. Losing our auto industry which requires massive capital investment and is vital to our national security and strategic defense position. Additionally, creating another overabundance of housing inventory won't do much to stabilize the housing market. I'd rather continue on the path of infrastructure rebuilding to pick up the jobs lost in new home construction as it has been severely neglected for too long.

    ReplyDelete
  7. It will be good to get the tax credit behind us so we can get an accurate read on the housing market. There are many foreclosures waiting to come to market and the employment picture is anything but cheery.

    I agree that giving into the Toll Brothers' plea for help will only make the inventory issue worse. It would be smarter to pay them for every house they don't build. It would be cheaper in the long run.

    Two big overhangs are:

    1) People are beginning to doubt that the stimulus plan will work.
    2) Taxes are going up next year, a lot for some people.

    This will be a one - two punch that crushes the recovery.

    Look out below.

    ReplyDelete
  8. "$8k on a $400k house means nothing to me."

    That comment is a reflection of the financial, intellectual level you wallow in.

    ReplyDelete
  9. $400K inside the beltway? What do you live in, a tin shack?

    ReplyDelete
  10. Where did I mention buying inside the beltway?

    ReplyDelete
  11. "That comment is a reflection of the financial, intellectual level you wallow in."

    Since we're resorting to pedantic comments, let me take it down a level instead.

    Your, yes, YOUR an IDIOT. $8k on an overpriced house that shot up 160% in a few years and has only dropped 25% in Maryland since the bubble is meaningless. If you bought because of the $8k credit alone, you are DUMB.

    ReplyDelete
  12. if we want to put people to work, we can hire all
    those construction workers to build metro stations
    around dc.

    ReplyDelete
  13. "Where did I mention buying inside the beltway?"

    This...

    "Inside the beltway $7500 is not a significant amount when it comes to buying most single family homes in this area"

    and then you followed up with this...

    "I completely agree .... $8k on a $400k house means nothing to me."

    Sorry I got the anon post confused

    ReplyDelete
  14. (New anon here.) For all of you poo pooing the impact of the tax credit, take a look at the tiered Case Shiller Indexes. The recent "recovery" is very pronounced in the low end, where the tax credit would have the most impact, and practically absent in the high end, where buyers wouldn't qualify for the credit (for the most part). This recovery is a sham.

    ReplyDelete
  15. "$8k on an overpriced house that shot up 160% in a few years and has only dropped 25% in Maryland since the bubble is meaningless."

    Actually they shot up near 300% and have only dropped about 15%.

    ReplyDelete
  16. "(New anon here.) For all of you poo pooing the impact of the tax credit, take a look at the tiered Case Shiller Indexes. The recent "recovery" is very pronounced in the low end, where the tax credit would have the most impact, and practically absent in the high end, where buyers wouldn't qualify for the credit (for the most part). This recovery is a sham."

    Lets see - the total recovery in the DC area (by price tier) is as follows:

    Low end +4.20%
    Mid end +6.00%
    Hi end +3.52%

    If its "very pronounced" anywhere, it seems like mid end

    ReplyDelete
  17. "Actually they shot up near 300% and have only dropped about 15%."

    Actually, if you look at places like Silver Spring and College Park, the drop is definitely a lot more than 15%. I looked at houses in those areas in 2006, and there was nothing less than $450K. I looked recently and equivalent houses going for $450-500K in 2006 are now $250-$300K.

    ReplyDelete
  18. "Your, yes, YOUR an IDIOT. $8k on an overpriced house that shot up 160% in a few years and has only dropped 25% in Maryland since the bubble is meaningless. If you bought because of the $8k credit alone, you are DUMB."
    --------------------------------

    As a matter of fact, the $8k tax credit should weigh in favor of NOT buying because it is, of course, priced into the selling price of the house.

    You are not getting a break. Wait until the tax credit expires and you will have a mortgage that is $8grand smaller.

    ReplyDelete
  19. Not to mention, doesn't the whole "tax cedit" with all these terms and conditions and strings attached seem like kind of a backdoor convaluted way for Uncle Scam to lend a hand to buyers? Does it seem fishy or of dubious value to anyoue else?

    Yet you have all these people who are jumping at it like it is a great deal -- a once in a lifetime opportunity -- a can't lose business proposition. These are the same rubes who get ripped off by Nigerians on Craigslist.

    ReplyDelete
  20. The housing market will continue to decline for one simple economic reason. There are not as many people to buy the homes, immigration will start slowing because those countries are starting to realize that their labor force is overseas.

    Without immigration there is no growth, the US as a whole has not been reproducing enough to replace the Baby Boomer generation that will start to drop off soon.

    It is a basic economic law of supply and demand. One only needs to do the math and read between the lines of all the bs politicians give regardless of party.

    John M.

    ReplyDelete
  21. "$8k on a $400k house means nothing to me."

    That comment is a reflection of the financial, intellectual level you wallow in.


    Just for context, this commenter was holding off having kids until he found out that by having one he could get ONE-THOUSAND DOLLARS in tax credits.

    W00t!@!

    ReplyDelete