Let home prices fall

CNBC's Diana Olick says let home prices fall and start over again:

Let’s say you take all the people who claim to be in trouble on their mortgages. Take those mortgages away, lower the value of the house to the current market price, and calculate the monthly payment based on the current interest rate on the 30-year fixed (and I mean conforming, not jumbo) which is around 6.35 percent. Oh, and by the way the historical average on the 30-year fixed over the last 25 years happens to be 7.89 percent, so I’m offering a deal. How many of those folks could still afford the home? My guess is that some could, but many more could not.

What I’m getting at here is that no matter how far we go in modifying, restructuring, writing down principal on loans in order to stop foreclosures, the bottom line is that most of the borrowers in trouble had no business being in the homes they bought in the first place. You can modify their loans for five years, but they will probably lose the home anyway.

Is that mean? It’s not meant to be. I just think that in order to set the market right we need to let prices fall to where they must and start over again with mortgages, buyers and homes that make sense. We’re all losing money here, but that’s because so many people took advantage of free money during the housing boom (and don’t get me started on how those who didn’t take advantage of that free money still get screwed).

I understand the need to restore the credit markets and stop the crash in housing, but keeping folks in homes that are way beyond their means is just prolonging the pain of the inevitable.

Renters support Obama over McCain by 5-to-2

From MarketWatch.com:

Apartment renters back Barack Obama for president almost 3-to-1 compared with John McCain, according to survey results released Tuesday by Apartments.com, an online listing service.

With the widespread housing market troubles, the survey’s results may come as no surprise as 90% of renters said the national economy is the most important of their top three issues. Health came in at 59%, and the Iraq War at 53%.

Among renter respondents, 59.1% said they back Obama, another 23.2% John McCain, 9.2% preferred not to answer, 5.6% are undecided, and rest responded "other."

Dividing 59.1 by 23.2 gives us an Obama/McCain ratio of 2.547 to 1. That can be rounded to 3/1 or, more precisely, 5/2.

Also, The Economist—a longtime admirer of John McCain—has just endorsed Barack Obama.

I'm curious to see who Bubble Meter readers support. Leave your thoughts in the comments section.

Homeowners unrealistic about home prices

Diana Olick thinks many homeowners are delusional:

Am I not doing my job? Or is nobody listening? How is it possible, in the midst of the worst credit crisis in history, which is predicated on one of the biggest housing crashes in history, that nearly half of all Americans still don’t get that home prices are falling?

A new survey from Zillow.com finds that a full 49 percent of those surveyed think their home has either retained its value or even gained value in the past year. According to Zillow, 74 percent of all U.S. homes have lost value in the last year. Don’t believe Zillow? How about the National Association of Realtors: Home prices down 9 percent nationwide in the past year. How about the government’s Office of Federal Housing Enterprise Oversight: Home Prices down 5.9 percent since last year. How about any real estate agent in the phone book??

Ok, I get it, all real estate is local, and a lot of folks simply believe that those national numbers don’t apply to their neighborhood. Yep, there’s some truth to that, there are some neighborhoods in some cities that are still strong. But not half the homes in the country!!! ...

Price a home correctly, even aggressively, in today’s market and it will sell, and that’s the road to recovery my friends, not listing your home for sale right in the heart of la la land.

If you can't sell your home, the price is too high.

Happy Halloween!

For those who like politics, here's a Halloween political cartoon.

Bits bucket for Friday, October 31

Please post your thoughts, links, and MLS/Craigslist finds here.

Reminder: Rent is due tomorrow.

The Washington, D.C. economy

Housing bubble cheerleaders endorse Gerry Connolly for Congress

Gerry Connolly, the chairman of the Fairfax County Board of Supervisors, is the Democratic candidate running to represent Virginia's 11th congressional district in the U.S. House of Representatives. Yesterday, I noticed the National Association of Realtors PAC is running television advertisements endorsing him.

The National Association of Realtors is one of the groups responsible for the housing bubble and the economic crisis that has followed. They were the ones out there misleading prospective home buyers by telling them, "Don't worry about the price, real estate prices never go down." After the housing bubble peaked, the National Association of Realtors repeatedly lied to the press about the outlook for the housing market. They kept saying that a housing market recovery was just around the corner. They predicted a housing recovery in late 2005. When that didn't occur, they predicted one in 2006, then 2007, then 2008, and now they say it will come in 2009.

Connolly's Republican opponent is Keith Fimian.

Irresponsible homeowners to get bailout

A plan to bail out irresponsible homeowners is apparently in the works:

The government is preparing to unveil a plan that would help around 3 million homeowners avoid foreclosure, sources briefed on the matter said.

A final deal had not been reached as of Wednesday afternoon and negotiations could still fall apart, but government agencies were contemplating using around $50 billion from the recently passed bailout of the financial industry to guarantee about $500 billion in mortgages.

The plan could include loan modifications that would lower interest rates for a five-year period, according to two people briefed on the plan. ...

The plan would be the most aggressive effort yet to limit damages from the collapse of the housing bubble that has shaken financial markets around the world and sparked fears of a global recession. ...

The government’s program would be run by the Federal Deposit Insurance Corp. The agency’s chairman, Sheila Bair, said last week she was working “closely and creatively” with the Treasury Department on such a plan, but revealed few details.

Hey, Sheila Bair, can you pay my rent, too?

Bits bucket for Thursday, October 30

Please post your thoughts, links, and MLS/Craigslist finds here.

Gas prices hit 3-year low yesterday

The national average was $2.63 per gallon yesterday:

Gasoline prices fell overnight, settling Tuesday to approach the lowest level in roughly three years, according to the American Automobile Association.

The national average price for a gallon of regular gas fell to $2.629, down 3.9 cents from the day before, according to AAA's Daily Fuel Gauge Report.

The last time gas was this low was Oct. 24, 2005 at $2.6237 a gallon. ...

Gas is down 36.1%, or $1.485, from the record-high price of $4.114 that AAA reported in mid-July. Gas is down 28.07%, or $1.026, from the month ago average.

On Oct. 18, the average price dropped below $3 a gallon for the first time in nearly nine months. ...

Demand for gas is dropping, as Americans drive less and consume less gas compared to last year.